8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 14, 2008

Capital Growth Systems, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Florida	0-30831	65-0953505
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

500 W. Madison Street, Suite 2060, Chicago, Illinois 60661

(Address of Principal Executive Offices, Including Zip Code)

(312) 673-2400

(Registrant's Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.Material Contracts.

On November 14, 2008, Capital Growth Systems, Inc. (the “Company”) through its wholly-owned subsidiary, Capital Growth Acquisition, Inc. (“CGAI”) entered into an Interest and Loan Purchase Agreement (the “ILPA”) with Vanco plc, a U.K. corporation in administration (“Seller”) pursuant to which CGAI agreed to purchase all of the outstanding membership interests (the “Interests”) of Vanco Direct USA, LLC (“Vanco Direct”), presently owned by the Seller. The Seller and Company have submitted a joint application to the Federal Communications Commission (“FCC”) for the granting of a special temporary authority to CGAI (“STA”) for CGAI to operate the assets of Vanco Direct under a management services agreement pending the formal approval of the change in beneficial ownership of Vanco Direct as a result of the sale of the Interests. On November 19, 2008, the FCC granted the STA, which is effective for a period of sixty days.

The ILPA contemplates that the purchase price for the Interests will be funded shortly following the granting of the STA (the closing date of which is the “Financial Closing”). In order to finance the purchase of the Interests, the Company entered into the following additional agreements, to be effective as of the Financial Closing of the transaction: (i) a Term Loan and Security Agreement with ACF CGS, L.L.C., as agent for one or more lenders (the “Term Loan Agreement”) pursuant to which the Company agreed to borrow $8.5 million from the senior lender(s), which amount may increase to up to $10.5 million (collectively, the “Senior Lender”); (ii) a Consent, Waiver, Amendment, and Exchange Agreement (the “Waiver Agreement”) with holders of its outstanding Senior Secured Convertible Debentures issued on March 11, 2008 (that were more fully described in the Company’s Current Report on Form 8-K filed March 12, 2008 - the “March Debentures”), pursuant to which the holders waived and amended certain conditions contained in the March Debentures and the corresponding Securities Purchase Agreement by and among the Company and the holders of the March Debentures (the “March SPA,” also described in the Company’s Current Report on Form 8-K filed March 12, 2008) which Waiver Agreement enabled the Company to enter into the Term Loan Agreement and issue the November Debentures (defined below) and the other transactions referenced below; (iii) a new Securities Purchase Agreement (the “November SPA”) pursuant to which the Company agreed to issue to certain holders of the March Debentures and to certain additional designated purchasers (including Aequitas Catalyst Fund, LLC - Series C, which agreed to convert its prior $500,000 loan to the Company - more fully described in the Company’s Current Report on Form 8-K filed October 1, 2008 - into a November Debenture) an additional $9,025,000 of purchase price amount of junior original issue discount secured convertible debentures (the “November Debentures”) coupled with warrants; (iv) an unsecured $3 million convertible debenture to be issued to the Seller (“Seller Debenture”) on the date of the closing of the ILPA; (v) an intercreditor agreement which governs the priorities and payments in favor of the Senior Lender (“Senior Lender Intercreditor Agreement”) relative to the holders of the March Debentures and the November Debentures (collectively, the “Junior Secured Creditors”); and (vi) an intercreditor agreement which governs the priorities and payments in favor of the Junior Secured Creditors (the “Junior Lender Intercreditor Agreement”) relative to the holder of the Seller Debenture. In addition, effective as of the Financial Closing, the Company will amend its engagement agreement with Capstone Investments as well as effect a new consulting agreement with Salzwedel Financial Communications, Inc. and will provide certain common stock and/or warrants pursuant to those agreements. This Current Report on Form 8-K describes each of the aforementioned agreements.

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PURCHASE OF VANCO DIRECT INTERESTS

Interest and Loan Purchase Agreement Vanco Direct USA, LLC

On November 14, 2008, the Seller and CGAI entered into the ILPA, pursuant to which CGAI agreed to purchase all of the Interests of Vanco Direct from the Seller. Vanco Direct holds domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity (or the equivalent) from various state telecommunications regulatory commissions (the “State Commissions” and, collectively with the FCC, the “Commissions” - and such authorizations and certificates collectively referred to as the “Licenses”).

The ILPA is structured for a two-step closing (with such period of time between the signing of the ILPA and the Final Closing (as hereinafter defined), referred to hereafter as the “Closing Period”). The first closing (the “Financial Closing”) is to occur within several days following the grant of an STA by the FCC for CGAI to operate Vanco Direct pursuant to a management services agreement which is anticipated to result in most, if not all, of the economic benefit or loss of Vanco Direct’s operations to be passed to the Company pending the Final Closing. At the Financial Closing, the Company will pay to Seller a total of $15.2 million for the purchase of the Interests as well as an intracompany loan from the Seller to Vanco Direct. The Company had previously paid to Seller a $500,000 deposit while negotiating the ILPA, which will be applied to the purchase price. The balance of the purchase price will be funded by delivery of cash and delivery of the Seller Debenture in the principal amount of $3 million, subject to adjustment, as noted below. In addition, the Seller required that it receive additional equity based compensation to effect the ILPA and three of the Company’s principal executive officers (i.e., Patrick Shutt, George King, and Robert Pollan) agreed that, effective as of the Financial Closing, each of them would assign to the Seller options in their name to purchase up to 1,916,667 shares (or 5,750,001 shares in the aggregate) of Common Stock. The options assigned are presently exercisable at $0.185 per share and lapse if not exercised during 2008.

At the Financial Closing, the purchase price will be paid to the Seller and the certificate for the Interests will be placed in escrow with the Senior Lender, to be transferred to CGAI upon the date of transfer of ownership of the Interests to CGAI (the “Final Closing”). Per the ILPA, the Final Closing shall occur upon the approval by the FCC and the State Commissions of the change in beneficial ownership of Vanco Direct to the Company (“Regulatory Approvals”). The Company may waive the Regulatory Approvals requirement if all Regulatory Approvals have not been obtained by ninety-one (91) days following the Financial Closing date. Further, if the Company has obtained the Regulatory Approval from the State Commission of the State of New York, then the Company may waive such requirement and proceed to the Final Closing any time that is at least forty-five (45) days following the Financial Closing date. A copy of the ILPA is being filed with this Current Report on Form 8-K as Exhibit 10.1.

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Vanco Direct presently subleases space in downtown Chicago, which is shared with a company that was a former subsidiary of Seller (“Former Sub”). The Seller Debenture contemplates that Vanco Direct and the Former Sub will share in the cost of the sublease. The principal amount of the Seller Note will be increased on a dollar for dollar basis, not to exceed $1 million of increase in principal amount, to the extent that Former Sub makes payments of rent with respect to occupancy of the Vanco Direct space, either to Vanco Direct or the sublessor landlord of the space (“Former Sub Payments”). Additionally, there are change in control consent provisions with respect to the sublease regarding the current sublessor, its sublessor, and the original lessor of the space. The Company intends to seek the consent of each of these parties with respect to the proposed change in control of Vanco Direct during the Closing Period. The principal amount of the Seller Note will automatically be increased by $1 million less the amount of Former Sub Payments received to date, upon receipt of the Former Sub’s consent to the assignment of the sublease. The Company has entered into an agreement with a subsidiary of Reliance Globalcom, whereby that subsidiary has agreed to become the direct sublessee on the sublease and to then sublease half the space for half the rent to Vanco Direct.

Seller Debenture

The Seller Debenture is an unsecured, non-interest bearing convertible debenture in the principal amount of $3 million, subject to adjustment as noted above. At any time after the Company increases its number of authorized shares of common stock (“Common Stock”) to not less than 600 million (the “Authorized Share Increase”), the Seller may convert all or any portion of the Seller Debenture into shares of Common Stock at a conversion rate of $0.24 per share. However, Seller may not sell any of the shares it received from such conversion until the first anniversary of the Financial Closing, unless sold in a private transaction with similar restrictions on resale of such Common Stock. As such, the entire Seller Debenture may be converted into an aggregate of 12.5 million shares of Common Stock, subject to increase to the extent its principal amount is increased. The Seller Debenture matures 364 days following issuance, subject to increase to a term of thirty (30) months from the date of issuance upon the Company acquiring beneficial ownership of Vanco Direct. Payment of any unpaid balance of the Seller Note at maturity will be subject to meeting certain financial covenants in the Seller Note in favor of the Senior Lender, as well as subject to certain additional financial tests set by the Junior Secured Creditors in their intercreditor agreement with the Seller. A copy of the Seller Debenture is attached hereto as Exhibit 10.2.

Management Services Agreement

Upon execution of the ILPA, CGAI was elected to serve as the manager of Vanco Direct and entered into a Management Services Agreement (the “MSA”) which will be effective as of the Financial Closing date. Under the MSA, CGAI is to be paid a monthly management fee equal to 30% of Vanco Direct’s revenues (provided that in no event shall any monthly payment exceed Vanco Direct’s net revenues for such month) and is responsible for any losses that may accrue. At the time of the Financial Closing, CGAI is authorized to execute the Term Loan Agreement on behalf of Vanco Direct, which will become a party to the Term Loan Agreement (with its assets subject to the liens in favor of the Senior Lender) despite the fact that the Interests will not be transferred to CGAI until the Final Closing. A copy of the MSA is attached hereto as Exhibit 10.3.

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Subsidiary Guaranty

Each of the active subsidiaries of the Company entered into a guarantee with the Seller whereby, effective as of the Financial Closing, they will guarantee the full amount of obligations of the Company with respect to the Seller Debenture. A copy of the Subsidiary Guaranty is attached hereto as Exhibit 10.4.

AMENDMENT AND RESTATEMENT OF MARCH DEBENTURES

Pursuant to the Waiver Agreement, the holders of $16 million of original principal amount of the March Debentures agreed to exchange their March Debentures for amended and restated March Debentures maturing March 11, 2015, convertible into Common Stock at $0.24 per share (the “Tranche 1 Amended March Debentures”) in which the remainder of the interest that would have accrued under their March Debentures, plus the sum of 25% of their original principal amount, plus all liquidated damages accruing with respect to the original registration rights agreement (12% of original principal amount) will be added to the principal amount of the Tranche 1 Amended March Debentures (collectively, the “Add-on Amount”). The Tranche 1 Amended March Debentures will not accrue interest through maturity; however, the Add-on Amount is scheduled to be fully redeemed through level amortization on a quarterly basis starting July 1, 2009, and continuing through the maturity of such debentures, at which time the remaining $16 million of principal will also be due. The Senior Lender Intercreditor Agreement contains certain conditions to the cash payment of the quarterly redemption amounts. To the extent the Company fails to satisfy those conditions, the Tranche 1 Amended March Debenture holders at their election can either accept payment of such amount with Common Stock valued at 90% of the volume weighted average price for a designated ten-day period prior to each payment or, alternatively, accrue the unpaid portion with interest until maturity. Many of the remaining terms of the March Debentures were embodied in the Tranche 1 Amended March Debentures, which include the right to convert the principal amount of the debentures to Common Stock, provided that the Add-on Principal amount is not convertible until the Authorized Share Increase, due to the current lack of sufficient authorized Common Stock to guarantee the issuance of the maximum number of shares issuable thereunder. The Waiver Agreement also calls for amendments to the March Securities Purchase Agreement in a manner that will allow the Company to enter into the Term Loan Agreement, issue the November Debentures, issue the Seller Debenture, and enter into certain other transactions contemplated in the ILPA and the above loan transactions.

With respect to two affiliated holders of March Debentures, who in the aggregate hold approximately $2,459,160 of principal amount of March Debentures (as reduced from original aggregate principal amount of $3 million due to prior conversions of principal to Common Stock), the Company agreed, effective as of the Financial Closing, to exchange their March Debentures for new debentures (the “Tranche 2 Amended March Debentures”) which mirror the Tranche 1 Amended March Debentures except that: (i) the Add-on amount for the Tranche 2 Amended March Debentures will be limited to the liquidated damages amount accrued for failure to have the registration statement declared effective on a timely basis plus the legal fees incurred by the holders in negotiation and documentation of the revised transactions; and (ii) at the Financial Closing, the Company agrees to make a one-time payment of all interest accruing or scheduled to accrue with respect to the corresponding original March Debentures (estimated to total approximately $915,000), in satisfaction of all interest accruing on the debentures. The aggregate principal amount of the Trance 2 Amended March Debentures is anticipated to be $2,832,484. The Add-on amount of these debentures is scheduled to be amortized in a manner similar to that of the Add-on Amount of the Tranche 1 Amended March Debentures. A copy of the Waiver Agreement and the forms of Tranche 1 Amended March Debenture and Tranche 2 Amended March Debentures are attached hereto as Exhibits 10.5, 10.6, and 10.7, respectively.

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TERM LOAN AND SECURITY AGREEMENT

The Term Loan and Security Agreement is between the Company, all of its subsidiaries and Vanco Direct, as borrowers, and ACF CGS, L.L.C. as agent (the “Agent”) for itself and/or certain other entities, if any, that become lenders under the Term Loan Agreement (the “Senior Lenders”). The Term Loan Agreement provides for a senior secured term loan (the “Term Loan”) of $8.5 million to be funded on the Financial Closing date, subject to an increase in availability of up to an additional $2 million, upon the approval of the Senior Lenders and the Company. The Company and its subsidiaries (as well as Vanco Direct) have granted to the Agent a security interest in substantially all of their assets and a collateral pledge of all of their subsidiaries’ common stock or limited liability company interests, with the exception of the Common Stock of the Company. The Term Loan will be evidenced by a Term Note bearing interest at a rate equal to the prime rate of interest, as defined, plus 14% per annum payable monthly, with 5% of that rate to be capitalized, compounded, and added to the unpaid principal amount of the Term Loan. The Term Note matures 364 days following the Financial Closing, subject to automatic extension effective as of the Final Closing to a date that is the second anniversary of the Financial Closing. In connection with the Term Loan, the Company agreed to pay an origination fee of 2.5% of the amount loaned and reimburse the Agent for all legal fees and other costs incurred in connection with the Term Loan.

The Company must pay a minimum of twelve (12) months of interest to the Lender on the full $8.5 million Term Loan regardless of when the Term Loan is repaid. If the Term Loan is prepaid at any time within the first twelve (12) months of the Loan, any shortfall to twelve (12) months of interest, calculated by applying the then applicable interest rate for the balance of the twelve-month period, shall be deemed due and owing as an exit fee. In addition to the forgoing, there is a 2% or a 1% prepayment premium (on the full $8.5 million commitment amount) if the Loan is repaid during months 12-18 or 19-24, respectively. The Term Loan Agreement contains certain mandatory prepayments which, when made, do not trigger any of the prepayment premiums described above. For example, if the Company sells assets outside of the ordinary course of business, the net sale proceeds must be used to pay down the Term Loan. Similarly, the Company has agreed to apply two-thirds (2/3) of any collections it receives on its existing accounts receivable with its largest customer as of September 30, 2008 toward prepayment of the Term Loan.

The Term Loan Agreement contains a number of financial covenants that the Company must maintain, including, but not limited to, a minimum debt to EBITDA ratio, a minimum cash balance, a minimum margin from the Company’s circuit business, and others. Further, under the Term Loan Agreement, the Company is required to provide the Agent with a monthly income statement regarding the Company’s circuit business, a monthly statement regarding the collateral securing the Term Loan, and a monthly summary of the balance on its accounts receivable with its largest customer. The Company must also provide to the Agent all federal tax returns filed by the Company as well as all reports filed with the Securities and Exchange Commission.

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Under the Term Loan Agreement the Company and its subsidiaries may not, among other things: (i) merge or consolidate with any other person, or purchase all or substantially all of the assets of any other person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of its assets or any of the collateral pledged to the Agent, or any interest therein, except that, so long as no default has occurred and is continuing, each Borrower may make sales of its inventory in the ordinary course of business; (ii) incur any indebtedness or liens on its assets except for indebtedness and liens incurred as a result of the issuance of the November Debentures, the Amended March Debentures, and the Seller Debenture, and purchase money financing not to exceed an agreed upon limit; (iii) pay any dividends (except for dividends to parent companies) or repurchase any of its stock, or make payments on the November Debentures, the Amended March Debentures, and the Seller Debenture (collectively, the “Debentures”), except as permitted by the Senior Lender Intercreditor Agreement; (iv) make any loans or advances to or extend any credit to any person, except for certain permitted investments and certain intercompany advances to the Company’s Magenta netLogic subsidiary, or create any new subsidiary or make loans to, transfer any money or other assets to, or otherwise invest in any subsidiary unless such subsidiary is or becomes a party to the Term Loan Agreement; (v) make capital expenditures in excess of $1 million in any fiscal year, determined on an aggregate basis; (vi) increase the total compensation paid to certain members of the Company’s management by more than 5% per year; (vii) amend or modify the Purchase Agreement, or any of the Company’s or any subsidiary’s charter documents, or the Debentures; (viii) enter into new capital leases in excess of $500,000 in the aggregate; (ix) settle or compromise its largest customer’s receivable; or (x) use the proceeds of the Term Loan other than for the acquisition of Vanco Direct or for working capital purposes.

An event of default occurs under the Term Loan Agreement when, among other things: (i) the Company fails to pay any amounts due thereunder when due (with a one business day grace period), (ii) the Company breaches any covenant (including any financial covenant) or fails to perform any agreement required under the Term Loan Agreement (with a five business day grace period); (iii) a breach of any representation or warranty made in the Term Loan Agreement; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debentures or any other agreement for borrowed money for an amount in excess of $100,000 (after giving effect to any applicable notice and cure period) or with respect to material real estate leases; (v) the suspension of the operation of any subsidiary’s or the Company’s present business; (vi) the Company or any subsidiary becomes insolvent, or a proceeding is instituted by or against it alleging that the Company or such subsidiary is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against the Company or any subsidiary; (vii) entry of any judgment in excess of $100,000 against the Company or any subsidiary; (viii) transfer of a substantial part of the property of the Company or any subsidiary or the sale, transfer, or exchange, either directly or indirectly, of a controlling interest of the Company or any subsidiary to a third person; (ix) if there are certain changes in management of the Company or any subsidiary and such change is not approved by the Agent; (x) the occurrence of any act, omission, event, or circumstance which has or could reasonably be expected to have a material adverse effect; (xi) if the Final Closing shall have not occurred within ninety-one (91) days following the funding of the Term Loan; or (xii) the transfer of Licenses necessary to operate in the States of California, Tennessee, and Pennsylvania has not been approved within ninety (90) days from the date of the Term Loan Agreement.

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In connection with entering into the Term Loan Agreement, effective as of the Financial Closing the Company will issue to the Agent a warrant (“Agent Warrant”) to purchase up to 12 million shares of its Common Stock having a term of five (5) years and exercisable at $0.24 per share. The Warrant contains full-ratchet anti-dilution and cashless exercise provisions. In addition, the Company has entered into a registration rights agreement providing the Agent certain registration rights including piggyback rights (shared with the other Debenture holders’ rights) and demand rights in the event that the shares of Common Stock underlying the Warrant are not eligible for resale pursuant to Rule 144 in the event of a cashless exercise. A copy of the Term Loan Agreement, the Term Note, and the Agent Warrant are attached hereto as Exhibits 10.8, 10.9, and 10.10, respectively.

NOVEMBER SECURITIES PURCHASE AGREEMENT AND RELATED ANCILLARY DOCUMENTS

November Securities Purchase Agreement

Pursuant to the November Securities Purchase Agreement, the Company will complete a private placement effective as of the Financial Closing date of $9,025,000 of securities with a limited number of investors (“Purchasers”) including: (i) certain of the holders of the March Debentures; (ii) Aequitas Catalyst Fund, LLC, which will convert its $500,000 short-term loan to a November Debenture; and (iii) Capstone Investments, which will be credited with the purchase of $700,000 of November Debentures in satisfaction of certain of its fees and expenses. The securities are comprised of: (i) November Debentures in an aggregate price amount of $14,891,250 (inclusive of the 65% increment noted below), maturing seven (7) years from issuance and convertible into Common Stock of the Company at $0.24 per share (the “Conversion Price;” representing 62,046,875 shares of Common Stock on an as-converted basis, subject to possible adjustment as discussed below); and (ii) one warrant per November Debenture, providing a right to purchase 75% of the number of shares of Common Stock purchasable with the original subscription amount of the November Debenture, at a price of $0.24 per share (subject to possible adjustment as discussed below) having a term ending seven (7) years from the Financial Closing date (the “November Warrants”). The November Debentures are original issue discount securities and do not call for the payment of interest over their term; in lieu of interest, the face amount of each November Debenture will be equal to the subscription amount paid for such November Debenture multiplied by 1.65 (such 65% increase over the original subscription amount being the “November Debenture Add-on Amount”). Conversion of the November Debentures shall not be permitted until the Company has effected the Authorized Share Increase.

The Company has affirmative obligations under the November Securities Purchase Agreement to: (i) hold a special meeting of shareholders within seventy-five (75) days to seek shareholder approval for the Authorized Share Increase and, at all times thereafter, reserve a sufficient amount of Common Stock to enable it to meet its obligations under the November Securities Purchase Agreement (to cover the maximum amount of shares purchasable under the November Debentures and November Warrants, and dividing that sum by 0.75); (ii) timely file all required reports under the Securities Act of 1934; (iii) promptly deliver the shares of Common Stock purchased by the Purchasers pursuant to conversion of their November Debentures or exercise of the November Warrants and is subject to liquidated damages (to the extent permitted under the Senior Lender Intercreditor Agreement) of $10 per $1,000 of securities (with the value computed based on a volume weighted average pricing or “VWAP” formula) for each day that it is late with respect to effecting such deliveries, increasing to $20 per $1,000 of securities should it fail to make such delivery commencing five (5) trading days after failing to meet this obligation; (iv) indemnify the Purchasers against enumerated liabilities in the event of actions taken against them in certain instances; (v) provide a right of first refusal to the Purchasers to participate in up to 30% of any subsequent financings by the Company; and (vi) include the shares of Common Stock underlying the November Debentures and the November Warrants on any registration statement that the Company may file to register shares of its Common Stock to such extent as may be requested by the holders thereof.

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Under the November Securities Purchase Agreement, the Company is prohibited from issuing any Common Stock or securities convertible or exercisable into shares of Common Stock until the Company’s shareholders approve the Authorized Share Increase. Further, the November Securities Purchase Agreement contains a number of negative covenants for so long as the November Debentures remain outstanding, which include a prohibition against: (i) claiming that any Purchaser is an “Acquiring Person” under any shareholder rights plan; (ii) providing material nonpublic information to the Purchasers or their counsel, absent execution by the applicable Purchaser(s) of a confidentiality agreement regarding such information; (iii) using the proceeds to satisfy any Company debt (other than that debt specifically set forth in the November Securities Purchase Agreement), redeem any Common Stock, or settle any outstanding litigation; (iv) issuing any Common Stock or Common Stock equivalent at an effective price per share of less than the initial conversion price of the November Debentures (except for “Exempt Issuances” tied to rights outstanding as of the date of funding); (v) entering into certain enumerated variable rate transactions where the pricing of the equity securities of the Company is subject to a variable formula; (vi) uneven treatment with respect to the Purchasers; (viii) breaching material contracts or leases; and (ix) effectuating a reverse or forward split of the Common Stock without the written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures, except for the reverse split expressly permitted under the Purchase Agreement.

November Debentures

The November Debentures, when issued, will mature seven (7) years from the Financial Closing Date. However, if the Final Closing has not occurred on or before the one-year anniversary of the issue date of the November Debentures, then they mature on the one-year anniversary thereof. It is anticipated that the Final Closing will occur no later than ninety-one (91) days following the Financial Closing. Each November Debenture is an original issued discount debenture with the face amount equal to the subscription amount paid for such November Debenture multiplied by 1.65.

For so long as the November Debentures are outstanding, on January 1, April 1, July 1, and October 1 of each calendar year, commencing with July 1, 2009 (each, a “Quarterly Redemption Date”), the Company is required to redeem a portion of the face amount of each November Debenture based upon a level amortization of the November Debenture Add-on Amount from the first payment date through maturity (the “Quarterly Redemption Amount”). The Quarterly Redemption Amount payable on each redemption date shall be paid in cash; however, should the terms of the Senior Lender Intercreditor Agreement prevent the cash payment, then the holder of the November Debenture may elect to either accrue the payment due through the maturity date, or elect to require the Company to pay all the Quarterly Redemption Amount in shares of Common Stock based on a conversion price equal to the lesser of: (i) the then Conversion Price; and (ii) 90% of the average of the VWAPs for the ten (10) consecutive trading days ending on the trading day that is immediately prior to the applicable Quarterly Redemption Date; provided that the Company may not pay the Quarterly Redemption Amount in shares of Common Stock unless the Company has satisfied certain “Equity Conditions” regarding its Common Stock. The “Equity Conditions” include, among other things: (i) the requirement that the shares of Common Stock underlying the November Debentures and November Warrants are either registered or eligible for resale without volume limitation under Rule 144; (ii) the Company has honored all prior redemption requests; (iii) the Authorized Share Increase has been approved and there are sufficient reserved shares underlying the November Debentures and November Warrants; (iv) the Common Stock is trading on the OTC Bulletin Board or a national securities exchange and will be doing so for the foreseeable future; (v) there is no event of default in place (or which could occur with the passage of time) with respect to the Purchase Agreement or any of the associated documents; (vi) the holder would not hold over the Exercise Limit (as defined below) of the Company’s outstanding Common Stock; and (vii) the dollar daily trading volume of the Company’s Common Stock is greater than $75,000 for the twenty trading day measurement period. If such Equity Conditions are not met, the holder must elect to either waive the Equity Conditions or not accept the prepayment amount, subject to an interest factor.

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The November Debentures are convertible at any time after the Authorized Share Increase is approved by the Company’s shareholders at the option of their holders at the “Conversion Price.” The “Conversion Price” is $0.24 per share, subject to adjustment to account for: (i) forward and reverse splits and other extraordinary transactions; and (ii) a full ratchet clause which effectively lowers the purchase price to the lowest price at which there is any subsequent placement of the Company’s Common Stock (or securities exchangeable into or convertible into or exercisable into Common Stock) placed at a price below the Conversion Price then in effect (with the exception of certain detailed “Exempt Issuances,” which include issuances pursuant to any existing options or warrants to acquire Common Stock currently in place). A similar Conversion Price adjustment applies to the extent of the value of any rights offerings made by the Company entitling stockholders to subscribe for securities at a price below the Conversion Price for the November Debentures. In addition, the November Debentures have protective provisions that call for the issuance of additional securities to the holders as if they were shareholders in connection with any subsequent distributions of cash or securities to the holders of the Common Stock. The Company has an affirmative obligation to notify the holders of events that cause an adjustment to the conversion price for the November Debentures. There is a limitation of conversions of Debenture principal or interest resulting in a holder owning greater than 4.99% of the Company’s Common Stock subject to an increase, with the prior consent of the holder, to 9.99% (the “Exercise Limit”), subject to a carve out for Aequitas Catalyst Fund, LLC and David Lies, who presently beneficially own in excess of that amount of shares of Common Stock. As noted above with respect to share transfers, there is a liquidated damages obligation of the Company of $10 per trading day per $1,000 of Common Stock (increasing to $20 per trading day per $1,000 of Common Stock) after three (3) trading days, to the extent that the Company fails to timely provide to the Purchasers the stock certificates to which they are entitled upon conversion of November Debenture indebtedness to Common Stock.

The November Debentures contain a “Buy-In” liability to the Company should it fail to timely deliver certificates following a conversion notice, which effectively holds the Company liable for the loss the holder would incur in the event it sold any of the shares relating to a conversion notice and then was forced to buy the underlying shares to effect the trade due to the Company’s failure to timely deliver the certificate.

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The November Debentures also provide that in the event of a “Fundamental Transaction,” the holders shall be entitled to receive the same kind and amount of securities, cash, or property that it would have received if the holder converted the November Debenture immediately prior to the Fundamental Transaction. “Fundamental Transactions” include: (i) mergers or consolidations of the Company with or into another entity; (ii) sale by the Company of all or substantially all of its assets; (iii) certain tender offers or exchange offers whereby the Company’s stockholders can exchange their shares for other securities, cash, or property; and (iv) certain reclassifications of the Company’s Common Stock or compulsory share exchanges effectively converting the Company’s securities into those of another entity.

The November Debentures contain certain negative covenants (which can be waived by the holders of 67% or more of the outstanding November Debentures) which include: (i) the incurrence of any additional indebtedness (other than indebtedness outstanding on the purchase date of the November Debentures, including all indebtedness described herein and up to $250,000 of purchase money financing in connection with asset acquisitions); (ii) the incurrence of any liens other than liens resulting from permitted indebtedness, liens for taxes or other governmental charges not yet due or being contested in good faith, and liens imposed by law which were incurred in the ordinary course of business; (iii) amendments to the Company’s charter or by-laws in a manner that would adversely impact the holders (other than the Authorized Share Increase); (iv) repurchases of stock of the Company with the exception of certain limited repurchases of stock owned by former employees; and (v) payment of cash dividends or other distributions with respect to the Company’s securities.

The November Debentures provide that the holders can accelerate the related indebtedness in the event of the occurrence of an “Event of Default” and failure to cure within the applicable cure period (not to exceed five trading days for monetary defaults, seven trading days following delivery of notice of nonmonetary defaults, or ten trading days following the date of a default where the Company knew of the default), if any. “Events of Default” include: (i) the breach by the Company of any of its obligations pursuant to the November Debentures or any of the other transaction documents (i.e., the November Securities Purchase Agreement or the associated agreements in connection therewith) or any other material agreement to which the Company (or any subsidiary) is a party; (ii) any representation or warranty being untrue or incorrect at the time made in any material respect; (iii) certain insolvency events with respect to the Company or material subsidiaries, or defaults with respect to any mortgage, credit agreement, or other facility which involves an obligation in excess of $150,000; (iv) cessation of listing of the Company’s Common Stock for five consecutive trading days; (v) a Change of Control transaction (including changes of beneficial ownership of the Company in excess of 40%; (vi) mergers or consolidations where the shareholders of the Company immediately prior to the transaction hold less than 60% of the aggregate voting power of the Company or successor after the transaction; (vii) sales of substantially all of the assets of the Company to a purchaser of which the shareholders of the Company prior to the transaction own less than 60% of the voting power of the acquiring entity; (viii) a replacement over a three-year period of over half of the members of the Company’s board of directors where the replacement directors were not approved by a majority of the current directors or directors that were duly approved by such persons), (ix) failure to meet the public reporting requirements of the Company under Rule 144; (x) failure to timely deliver stock certificates; (xi) loss of eligibility of the Common Stock for trading on its trading market; (xii) the Company shall agree to sell all or substantially all of its assets or be party to a Fundamental Transaction or a Change in Control Transaction; (xiii) and the entering against the Company of any monetary judgment for more than $50,000 which remains unvacated, unbonded, or unstayed for a period of forty-five days.

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November Warrants

The November Securities Purchase Agreement calls for the issuance of Warrants comprising the right to purchase up to 75% of the shares issuable per the November Debentures (28,203,125 shares of Common Stock in the aggregate for all of the November Warrants based as of the Financial Closing date) at an exercise price of $0.24 per share (subject to adjustment, as discussed below). The November Warrants expire five (5) years from the Financial Closing date but may only be exercised after the Company’s shareholders have approved the Authorized Share Increase. The November Warrants may be exercised for cash or on a cashless basis.

Exercise of the November Warrants is for cash only; however, if by the six-month anniversary following their date of issuance, the shares underlying the November Warrants are not eligible for resale under Rule 144 and an effective registration statement is not in place for the underlying shares, then the holders shall have a right to exercise the Warrants on a cashless basis. Upon exercise of a November Warrant, the Company has an obligation to promptly deliver the underlying shares and is subject to a liquidated damages clauses comparable to those applicable to the November Debentures, for: (i) failure to timely deliver the certificates for the purchased Common Stock as a result of exercise of the November Warrants; or (ii) losses incurred by the Warrant holder as a result of having to effect a Buy-In of Common Stock to cover any sale of the shares corresponding to the November Warrant exercise, where the Company failed to timely delivery to the holder the shares of Common Stock related to the November Warrant exercise.

The $0.24 per share exercise price for the November Warrants is subject to adjustment for stock splits and other extraordinary corporate events. In addition, the November Warrants contain a full ratchet adjustment mechanism for the applicable purchase price comparable to the full ratchet adjustment mechanism applicable to the exercise price for the conversion of November Debenture indebtedness into equity of the Company, as well as a conversion modification to account for distributions of cash, securities, or other property to stockholders of the Company. The Company has an affirmative obligation to notify the November Warrant holders of adjustments to the exercise price of the November Warrants.

As with the November Debentures, there is a limitation on the amount of Common Stock issuable to a Warrant holder to 4.99% of the outstanding Common Stock of the Company, subject to an increase with the written consent of the holder to 9.99%, subject to the corresponding carve out of this requirement for Aequitas Catalyst Fund, LLC and David Lies. In addition, the November Warrants call for similar rights to those of the holders of the November Debentures in the event of Fundamental Transactions.

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Security Agreement

The Company and all of its subsidiaries, as well as Vanco Direct (each, a “Debtor,” and collectively, the “Debtors”) entered into a Security Agreement (in addition to the U.K. Security Agreement, which, as noted above, the Company expects will be executed no later than the Financial Closing Date) pursuant to which they granted to the Purchasers a security interest in all of the assets of the Debtors (the “Collateral”). The Purchasers agreed to appoint one of the Purchasers to act as their Agent under the Security Agreement. Pursuant to the Security Agreement: (i) no Debtor may sell any Collateral except in the ordinary course of business; (ii) each Debtor shall preserve its Collateral and maintain sufficient insurance with respect thereto; (iii) no Debtor will change its name, type of organization, or jurisdiction; and (iv) there are numerous reporting obligations should any of the Collateral be moved or should the Company or any of its subsidiaries change its central office or name. Upon an Event of Default, the Agent may exercise all rights available to any of the Purchasers, including taking possession of the Collateral and operating the business of each Debtor.

Subsidiary Guaranty

Each of the active subsidiaries of the Company and Vanco Direct entered into a guarantee with the Purchasers whereby, effective as of the Financial Closing, they will guarantee the full amount of obligations of the Company with respect to the Debentures.

The November Securities Purchase Agreement, the November Debentures, the November Warrants, the Security Agreement, and the Subsidiary Guaranty are attached hereto as Exhibits 10.11, 10.12, 10.13, 10.14, and 10.15, respectively.

Senior Lender Intercreditor Agreement

The Company, the Agent, and the holders of the March Debentures, the November Debentures, and the Amended March Debentures entered into a Senior Lender Intercreditor Agreement. As of the Financial Closing, the holders of the Debentures and the Company agreed that Agent, on behalf of the Senior Lenders under the Term Loan Agreement, has a senior secured position with respect to all of the assets of the Company and its subsidiaries. The Senior Lender Intercreditor Agreement provides that no cash payments may be made under the Debentures until the Loan is repaid in full, unless certain covenants are met by the Company. In such case, the cash payments called for under the Debentures may be made to the extent that the payments will not violate the covenants. A copy of the Senior Lender Intercreditor Agreement is attached hereto as Exhibit 10.16.

Junior Lender Intercreditor Agreement

The holders of the Debentures and the Company have entered into a second intercreditor agreement which, effective as of the Financial Closing date, generally subordinates any cash payment of the Seller Debenture to payment of the March Amended Debentures and November Debentures, unless the Company meets certain designated performance criteria per the Junior Lender Intercreditor Agreement, a copy of which is attached hereto as Exhibit 10.17.

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ANCILLARY AGREEMENTS

First Amendment to Capstone Engagement Agreement

The Company has entered into a first amendment to its Engagement Agreement with Capstone Investments (“Capstone”), a registered broker/dealer that assisted the Company on an exclusive basis with respect to the placement of the Term Loan and the November Debentures. The first amendment provides that Capstone shall be compensated in the amount of 7% of the cash proceeds raised from the sale of the Term Loan and November Debentures and be issued a warrant (with terms substantially the same as the November Debentures) to purchase 7% of the shares of Common Stock that could be purchased as of the Initial Closing Date with respect to the total cash raised, were it all to be converted to Common Stock at $0.24 per share and subject to cashless exercise rights. Capstone is also entitled to a fixed $200,000 non-accountable expense reimbursement to cover all expenses it incurred from the date of its initial engagement in connection with the March Debentures through the Financial Closing. This will result in commissions of $1,226,750 (exclusive of the expense reimbursement above) and a warrant to purchase up to 5,111,458 shares of Common Stock, exercisable at $0.24 per share for a period of five (5) years following the Financial Closing. Capstone will be credited with the purchase of $700,000 of November Debentures as partial satisfaction of the fees and expense reimbursements identified above.

Financial Consulting Services Agreement

The Company has signed an agreement, to be effective as of the Financial Closing, with Salzwedel Financial Communications, Inc. (“SFC”) for the provision of financial consulting services through October 31, 2009. SFC will perform investor relations and public relations services for the Company with respect to the financial community, as well as other services as outlined in the Agreement. In consideration for such services, the agreement provides that the Company will pay SFC an $8,000 per month consulting fee and issue to it: (i) 2 million shares of Common Stock - effective as of the date of the Authorized Share Increase; and (ii) a five-year warrant to purchase up to 15 million shares of Common Stock, exercisable at $0.24 per share and containing cashless exercise rights. A copy of the SFC Agreement is attached hereto as Exhibit 10.18.

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RISK FACTORS

The consummation of the transactions contemplated by the ILPA is subject to a number of risks. The Financial Closing is contingent upon the absence of material adverse changes to the Company or Vanco Direct during the intervening period between execution of the ILPA and the Financial Closing or due to any other reason that the transactions are not consummated. As is typical for domestic telecom acquisitions, the change in control of the target company (Vanco Direct) is contingent upon the approval of the FCC and the state Regulatory Authorities of CGAI, as the acquirer of Vanco Direct. While the Company believes that the permanent change in control applications will be granted, there can be no assurances that it will be successful in effecting such regulatory approvals. The operations of the Company on a going forward basis will be subject to numerous affirmative and negative covenants with respect to its Senior Lenders and the Junior Lenders, including, but not limited to, the obligation to obtain: (i) the Authorized Share Increase within seventy-five (75) days following the financial approval and (ii) the consents of the sublessors and lessor of its leased space to the change in control of Vanco Direct on or before the Final Closing date. Failure to obtain such approvals could result in breach of the Company’s obligations with its lenders. There can be no assurances that, in the event it breaches any of its loan covenants, the Company will be able to obtain the necessary waivers and consents to avoid acceleration of indebtedness.

Item 9.01Exhibits.

Exhibit 10.1	Interest and Loan Purchase Agreement
Exhibit 10.2	Seller Debenture
Exhibit 10.3	Management Services Agreement
Exhibit 10.4	Subsidiary Guaranty (re: Seller)
Exhibit 10.5	Consent, Waiver, Amendment, and Exchange Agreement
Exhibit 10.6	Form of Tranche 1 Amended March Debenture
Exhibit 10.7	Form of Tranche 2 Amended March Debenture
Exhibit 10.8	Term Loan and Security Agreement
Exhibit 10.9	Term Note
Exhibit 10.10	Agent Warrant
Exhibit 10.11	November Securities Purchase Agreement
Exhibit 10.12	Form of November Debenture
Exhibit 10.13	Form of November Warrant
Exhibit 10.14	Security Agreement
Exhibit 10.15	Subsidiary Guaranty (re: Purchasers)
Exhibit 10.16	Senior Lender Intercreditor Agreement
Exhibit 10.17	Junior Lender Intercreditor Agreement
Exhibit 10.18	Financial Consulting Services Agreement with Salzwedel Financial Communications, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: November 19, 2008

CAPITAL GROWTH SYSTEMS, INC.
By:	/s/Jim McDevitt
	Jim McDevitt
	Chief Financial Officer

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EX-10.1

Exhibit 10.1

Execution Version

INTEREST AND LOAN PURCHASE AGREEMENT

This Interest and Loan Purchase Agreement (the “Agreement”), dated as of November 14, 2008 (the “Effective Date”), by and among Vanco plc (in administration), a company incorporated under the laws of England and Wales with registered company number 3470117 (“Seller”), Simon John Granger and Chad Griffin, each an insolvency practitioner of FTI Consulting Limited, a company incorporated under the laws of England and Wales with registered company number 04805205, in their respective capacities as joint administrators of Seller (collectively, “Administrators”), and Capital Growth Acquisition, Inc., a corporation organized under the laws of Delaware (“Buyer”).

WHEREAS, Administrators were appointed to act as joint administrators of Seller on May 25, 2008 by Lloyds TSB Bank plc in accordance with paragraph 14 to Schedule B1 to the (English) Insolvency Act 1986;

WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell to Buyer all issued and outstanding limited liability company interests of Vanco Direct USA, LLC, a Delaware limited liability company (the “Company” or “VDUL”) on the terms and subject to the conditions set forth herein;

WHEREAS, in connection with Buyer’s acquisition of the Units (as defined below), Buyer desires to purchase from Seller and Seller desires to sell to Buyer all of Seller’s rights, title and interest in that certain Intercompany Loan Agreement, dated May 25, 2008, by and between VDUL as borrower and Seller as Lender (the “Loan”), and pursuant to which Seller agreed to loan VDUL up to £5,000,000, with $3,851,176 outstanding as of the Effective Date (the purchase and sale of the Units and Loan shall hereinafter be referred to as the “Acquisition”); and

WHEREAS, the parties also wish to provide for the treatment of certain rights, liabilities and obligations of VDUL in connection with the Acquisition.

NOW, THEREFORE, the parties agree as follows:

1. Purchase and Sale of Units and the Loan

1.1.Acquisition.

(a)At the Initial Closing (as defined below), Buyer shall purchase from Seller, and Seller shall sell to Buyer, such right, title and interest as Seller may have in (i) 1000 units (the “Units”) of limited liability company interests of VDUL presently owned by Seller, which, to the awareness of the Administrators, represent 100% of the limited liability company interests of VDUL owned by Seller, and (ii) the Loan; provided, however, that legal title to the Units shall not transfer to Buyer until the Regulatory Approvals (as defined below) are addressed, as required hereunder, and certain other conditions set forth herein are satisfied.

(b)The aggregate purchase price payable by Buyer for the Units and the Loan (the "Purchase Price") is $15,233,452. The Purchase Price shall be adjusted in accordance with Section 1.1(c) below and shall be allocated between the Units and the Loan as follows: (A) $11,382,276 is allocable to the Units; and (B) $3,851,176 (representing the outstanding principal and interest of all amounts owed by VDUL to Seller under the Loan as of the Effective Date) is allocable to the Loan.

(c)The Purchase Price shall be (i) increased by any additional payments made by Seller to VDUL under the Loan from the Effective Date through the Initial Closing Date (as defined below)(each, an “Additional Loan Payment”), and (ii) decreased by any distributions made by VDUL to Seller (such distributions being limited to dividends or the payment of any management charges to Seller or any of its affiliates) from the Effective Date through the Initial Closing Date. Buyer and Seller hereby acknowledge that delivery from Seller to Buyer of a copy of a receipt of funds or bank statement evidencing any such Additional Loan Payment shall constitute sufficient evidence of the same. The allocation of Purchase Price to the Loan, as set forth in Section 1.1(b) above, shall be increased in an amount equal to all such Additional Loan Payment(s). The Purchase Price as adjusted through the Initial Closing Date shall hereinafter be referred to as the “Final Purchase Price.”

1.2.Management Services Agreement.

(a)The Company holds domestic and international Section 214 authorizations from the U.S. Federal Communications Commission (“FCC”) and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions (the “State Commissions” and, collectively with the FCC, the “Commissions”)(such authorizations and certificates collectively referred to as the “Licenses”).

(b)Immediately following the execution of this Agreement, Buyer shall:

(i)initiate the delivery of the FCC (a) applications to transfer control of the Licenses to Buyer (individually, an “FCC Transfer Application” and collectively, the “FCC Transfer Applications”) and (b) requests for special temporary authority from the FCC pursuant to which control of VDUL will be transferred to Buyer until the FCC Transfer Applications have been approved (“STA Requests”), such that the FCC Transfer Applications and STA Requests are duly filed with the FCC no later than the business day following the Effective Date; provided, however, that Buyer shall use its best efforts to file the FCC Transfer Applications and STA Requests on the Effective Date; and

(ii)enter into a management services agreement (the “MSA”) in the form attached hereto as Exhibit A, which MSA shall become effective as of the Initial Closing Date.

(c)As soon as practicable, but in any event no later than five business days after the Effective Date, Buyer shall use its best efforts to file with the State Commissions all required notices, applications, petitions or other requests for approval to transfer control of the Company or Licenses to Buyer (“State Transfer Applications” and together with the FCC Transfer Applications, “Transfer Applications”); provided, however, the State Transfer Application(s) required by the state of New York shall be filed within one (1) business day after the Effective Date via overnight delivery service. For purposes of this Agreement, the term “business day” shall mean any day other than (1) a Saturday or Sunday, or (2) a day on which banking and savings and loan institutions are authorized or required by law to be closed in the State of Illinois or the District of Columbia.

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(d)From and after the Initial Closing Date until the termination of the MSA, Buyer shall operate the business of the Company pursuant to the MSA until (i) all notice waiting periods have expired or been waived by the corresponding State Commissions, and (ii) all Transfer Application approvals have been issued (collectively, “Regulatory Approvals”). A list of the required Regulatory Approvals is set forth in Schedule 1 attached hereto.

1.3.Payment of Purchase Price.

(a)Prior to the execution of this Agreement, Buyer made a non-refundable payment of $500,000 to Seller (the “Deposit”) for the sole benefit of Seller. Notwithstanding anything to the contrary herein, the Deposit shall not be returned to Buyer for any reason, including, without limitation, the failure of any Closing (as defined below) to have occurred.

(b)Immediately upon Buyer’s receipt of the Instruction Letter (as defined below), but in any case no later than the next business day after Buyer’s receipt of the same, Buyer shall pay, or cause to be paid, the Final Purchase Price as follows:

(i)Buyer shall deliver to Seller a fully executed debenture, in the form attached hereto as Appendix 1 (the “Debenture”), in the principal amount of $3,000,000 (the “Debenture Amount”).

(ii)To the extent that such payment has not already been made, £735,365 (the “Hitachi Funds”) shall be paid by wire transfer of immediately available funds to an account designated by Hitachi Capital UK plc (“Hitachi”), representing the full and final settlement of VDUL’s payment obligation to Hitachi under that certain Software Assignment Agreement, dated May 24, 2008.

(iii)An amount equal to the Final Purchase Price less the Deposit, the Debenture Amount and the Hitachi Funds (as applicable), shall be paid by wire transfer of immediately available funds to the Seller.

(c)Notwithstanding anything herein to the contrary, in addition to the payment by Buyer to Seller of the Purchase Price in accordance with the terms of this Agreement, Buyer shall also fully and irrevocably assign, transfer and deliver, or cause to be delivered, to Seller, the Options (as defined below) concurrently with the payment of the Final Purchase Price.

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(d)(i) As used herein, “Instruction Letter” shall mean a letter from Seller (which may be delivered by means of documented overnight delivery service, facsimile, electronic mail or other electronic transmission) informing Buyer that the STA Requests have been approved, or otherwise confirming the same, and thereby instructing the Buyer to pay, or cause to be paid, no later than one business day following delivery of such notification to Buyer, the Final Purchase Price in accordance with the provisions of this Agreement. The Instruction Letter shall be in a form agreed to by the parties prior to the Effective Date.

(ii) As used herein, “Options” shall mean, collectively, those certain options to purchase an aggregate of 5,750,001 shares of Common Stock pursuant to each Capital Growth Systems, Inc. Fixed Stock Option Grant Agreement attached hereto as Appendix 2.

1.4.Closings.

(a)The payments set forth in Section 1.3(b) above and the deliverables set forth in Section 1.5 below shall each be made, and the initial closing of the Acquisition (“Initial Closing”) shall take place at the offices of Shefsky & Froelich Ltd., 111 E. Wacker #2800, Chicago, Illinois 60601 (the “Closing Offices”), immediately following Buyer’s receipt of the Instruction Letter, but in no event later than the next business day thereafter; provided, however, if the Initial Closing has not occurred by the seventh (7th) business day following the Effective Date, then either party may terminate this Agreement by delivery of five (5) business days notice (such date as of the end of the notice period being the “Outside Date” and such notice being the “Termination Notice”), in which event this Agreement shall be terminated. Notwithstanding the foregoing, the parties may elect to close at such other time, date and place as they may mutually agree. The Seller shall deliver the Instruction Letter to the Buyer (with a copy delivered to Buyer’s counsel) immediately upon any party’s receipt of written, or other, notice from the FCC that the STA Requests have been approved. The date on which the Initial Closing is actually held hereunder is referred to herein as the “Initial Closing Date”. In the event of termination of this Agreement pursuant to delivery of the Termination Notice, neither party shall have any liability to the other party for failure to close the transactions contemplated herein, except that a party may be liable if such termination is a direct result of such party’s breach of its obligations under Section 1.2(b)(i) or (ii) above.

(b)The final closing (“Final Closing”, together with the Initial Closing, the “Closings” and each, a “Closing”) shall take place at the Closing Offices as soon as practicable after all remaining Regulatory Approvals have been received (or jointly waived to the extent agreed between the parties that any Regulatory Approval is no longer required), but in any event no later than three (3) business days thereafter; provided that Buyer may elect to waive any such remaining Regulatory Approval(s) after ninety one (91) days following the Effective Date; provided, further, that in the event that Regulatory Approval for the State Commission for the State of New York is approved prior to ninety one (91) days after the Effective Date, then the Final Closing shall be held on the date of such approval, but in no event earlier than forty five (45) days following the date of the Initial Closing. At the Final Closing, legal title to the Units shall automatically be transferred to Buyer pursuant to the terms of the Escrow Agreement referenced in Section 1.5(a)(ix) without any further action required by any party. The date on which the Final Closing is actually held hereunder is referred to herein as the “Final Closing Date”.

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1.5.Deliveries at Closings. At the Initial Closing, and subject to the simultaneous payment of funds and delivery of the Debenture and the Options described in Sections 1.3(b) and (c) above, the following deliveries shall be made:

(a) Seller shall deliver, or cause to be delivered, to Buyer or its designees as follows:

(i) a counterpart executed copy of that certain Term Loan and Security Agreement, as executed by VDUL in favor of ACF CGS as agent (“Agent”) for the lenders named therein, substantially in the form attached hereto as Exhibit B (the “Loan and Security Agreement”), whereby VDUL pledges to Agent a security interest as of Initial Closing in all of its assets except those telecom related assets where prior approval of the State Commissions is required for such approval; a counterpart executed copy of that certain Security Agreement, as executed by VDUL in favor of the subordinated lenders named therein in the form attached hereto as Exhibit C (the “Subordinated Security Agreement”); and a counterpart executed copy of that certain Intercreditor and Subordination Agreement, as executed by VDUL in the form attached hereto as Exhibit D (the “Sub-Debt Intercreditor Agreement”). By execution of this Agreement, Seller and Buyer acknowledge that:

(A) Agent shall as of the Initial Closing, hold a security interest in the assets of VDUL and be entitled to the rights and remedies set forth in the Loan and Security Agreement, including the right to enforce the rights and remedies of Buyer under this Agreement to receive delivery of the Units upon the Final Closing;

(B) the execution of the Loan and Security Agreement and the ancillary documents thereto, including, but not limited to, UCC Filing Authorization Letter, a United Kingdom Deed of Priority, Intellectual Property Security Agreement, a Membership Interest Transfer Power (endorsed in blank), an officer’s certificate regarding absence of defaults, and a secretary’s certificate, shall be made on behalf of VDUL by Buyer in its capacity as Manager of VDUL, to which execution and delivery Seller consents; and

(C) the execution of the Subordinated Security Agreement and the Sub-Debt Intercreditor Agreement shall be made on behalf of VDUL by Buyer in its capacity as Manager of VDUL, to which execution and delivery Seller consents.

(ii) the Loan, along with a fully executed Assignment and Assumption Agreement in the form attached hereto as Exhibit E (the “Assignment and Assumption Agreement”), whereby Seller irrevocably assigns, and Buyer irrevocably assumes, any and all of Seller’s rights and obligations under the Loan;

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(iii) release documentation, in the agreed form, duly executed by all required parties thereto unconditionally and irrevocably releasing the Units and the assets of the Company from all collateral liens and security interests in favor of Lloyds TSB Bank plc;

(iv) release documentation, in the agreed form duly executed by Macquarie unconditionally and irrevocably releasing the assets of the Company from all collateral liens and security interests in favor of such parties (together with proof of payment or settlement, as applicable) and release of all equipment (except equipment located at customer interconnect sites) subject to capital leases with Macquarie;

(v) a copy of the Limited Liability Company Agreement (“LLC Agreement”) for VDUL, together with a duly executed amendment to the LLC Agreement changing the manager(s) or the members responsible for the management of VDUL to Buyer;

(vi) possession of all of the Hewlett Packard servers in the possession or control of Seller which support the USX, Lattis and Oracle software applications of VDUL; provided, that for purposes of this Section 1.5(a)(vi), all such servers that are in the possession or control of VDUL as of the Initial Closing Date, shall be deemed delivered to Buyer;

(vii) possession of all books and records of VDUL that have been customarily maintained at VDUL’s offices or which would otherwise be required for Buyer to be able to complete its audit of VDUL’s operations for the calendar years ended December 31, 2006 and 2007 (including balance sheets if any exist for VDUL as of December 31 of each of 2005, 2006 and 2007, as well as for all of 2008 through the Initial Closing Date); provided, that for purposes of this Section 1.5(a)(vii), all such books and records on the premises of VDUL located at 200 S. Wacker Street, Chicago, Illinois as of the Initial Closing Date, shall be deemed delivered to Buyer;

(viii) passwords to all computers, computer systems and computer programs of VDUL necessary for operation of VDUL’s business in the possession or control of Seller, to the extent that the same is not in the possession and control of VDUL as of the Initial Closing date; and

(ix) (A) a duly executed escrow agreement, in the form attached hereto as Appendix 3, (B) the certificate for the Units, and (C) a duly executed assignment separate from such certificate assigning the Units to Buyer. The deliverables set forth in this Section 1.5(a)(ix) shall be delivered to Shefsky & Froelich Ltd. as escrow agent to hold for the benefit of the parties, and legal title shall be transferred to Buyer as of the Final Closing.

(b)Buyer shall deliver, or cause to be delivered, to Seller or its designees as follows:

(i) a counterpart fully executed copy of the Sub-Debt Intercreditor Agreement;

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(ii) the fully executed Debenture;

(iii) the fully executed Assignment and Assumption Agreement;

(iv) the fully executed Subsidiary Guaranty in favor of Seller, in the form attached hereto as Exhibit F; and

(v) the Options, fully and irrevocably assigned and transferred to the Seller.

1.6.United States Tax Treatment. The parties acknowledge that the Acquisition shall be considered a sale by Seller and acquisition of assets of VDUL by Buyer for United States income tax purposes, and the Buyer and Seller agree to file with their respective United States federal income tax returns consistent Forms 8594-Asset Acquisition Statements Under Section 1060, including any required amendments thereto.

2. Representations and Warranties of Seller

NEITHER SELLER NOR THE ADMINISTRATORS, NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MEMBERS, PARTNERS, AGENTS, REPRESENTATIVES, ATTORNEYS OR ACCOUNTANTS, MAKE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, OF ANY KIND TO BUYER, INCLUDING WITHOUT LIMITATION, WITH RESPECT TO (I) THE COMPANY OR THE COMPANY’S BUSINESS, ASSETS, LIABILITIES OR OPERATIONS AND (II) THE ACCURACY AND COMPLETENESS OF ANY INFORMATION PROVIDED TO BUYER AND ITS REPRESENTATIVES, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.

3. Representations and Warranties of Buyer

3.1.Investment Representations. Buyer represents and warrants as follows:

(a)Buyer understands that the Units have not been registered under the Securities Act of 1933 (the "1933 Act") or the laws of any state, and the transactions contemplated hereby are being undertaken in reliance upon an exemption from the registration requirements of the 1933 Act, and reliance upon such exemption is based upon Buyer's representations, warranties and agreements contained in this Agreement.

(b)Buyer has received and carefully reviewed all information necessary to enable Buyer to evaluate the Acquisition. Buyer has been given the opportunity to ask questions of and to receive answers from Seller, the Administrators and the Company concerning the Company’s business, the Units and the Loan, and to obtain such additional written information necessary to verify the accuracy thereof.

(c)Buyer is aware the purchase of the Units and the Loan is speculative and involves a high degree of risk. Buyer is aware that there is no guarantee that Buyer will realize any gain from the Acquisition. Buyer further understands that Buyer could lose the entire amount of the Purchase Price and any additional sums invested into the Company by Buyer after the Effective Date.

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(d)Buyer understands that no federal or state agency or other authority has made any finding or determination regarding the fairness of the Acquisition or has made any recommendation or endorsement thereof or has passed in any way upon this Agreement.

(e)Buyer, subject to the proviso set forth below: (i) is acquiring the Units solely for Buyer's own account for investment purposes only and not with a view toward resale or distribution thereof, in whole or in part, (ii) has no undertaking, agreement or arrangement, in existence or contemplated, to sell, pledge, assign or otherwise transfer the Units to any other person; and (iii) agrees not to sell or otherwise transfer the Units unless and until it is subsequently registered under the 1933 Act and any applicable state securities laws, or unless an exemption from any such requirement is available

(f)Buyer is financially able to bear the economic risk of the Acquisition, including the ability to hold the Units indefinitely and to afford a complete loss of the Purchase Price and any additional sums invested into the Company by Buyer after the Effective Date. Buyer has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Acquisition.

3.2.Access to Data. Buyer has received and reviewed information about the Company and has had an opportunity to discuss the Company's business, management and financial affairs with its management and to review the Company's facilities. Buyer understands that such discussions, as well as any written information provided by Seller, Administrators or the Company, were intended to describe the aspects of the Company’s business and prospects which Seller, Administrators or the Company believes to be material, but were not necessarily a thorough or exhaustive description, and Seller and Administrators make no representation or warranty with respect to the completeness of such information and makes no representation or warranty of any kind with respect to any information provided by any entity. Some of such information includes projections as to the future performance of the Company, which projections may not be realized, are based on assumptions which may not be correct and are subject to numerous factors beyond Seller’s and Administrators’ control.

3.3.Authorization. As of the Effective Date, all action on the part of Buyer and its officers, directors and partners necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of Buyer hereunder shall have been taken, and this Agreement, assuming due execution by the parties hereto, constitutes valid and legally binding obligations of Buyer, enforceable in accordance with its terms, subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief, and other equitable remedies and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights.

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3.4.Compliance with Other Instruments. Buyer is not in violation or default of any provision of its certificate of incorporation or other organizational documents, as applicable, each as in effect immediately prior to the applicable Closing, except for such failures as would not be reasonably expected to materially adversely effect the ability of Buyer to perform its obligations under this Agreement (a "Buyer Material Adverse Effect"). Buyer is not in violation or default of any provision of any material instrument, mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or obligation to which it is a party or by which it or any of its properties or assets are bound which would reasonably be expected to have a Buyer Material Adverse Effect. To the best of its knowledge, Buyer is not in violation or default of any provision of any federal, state or local statute, rule or governmental regulation which would reasonably be expected to have a Buyer Material Adverse Effect. The execution, delivery and performance of and compliance with this Agreement will not result in any such violation, be in conflict with or constitute, with or without the passage of time or giving of notice, a default under any such provision, require any consent or waiver under any such provision (other than any consents or waivers that have been obtained), or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of Buyer pursuant to any such provision.

3.5.“As Is/Where Is”. Buyer acknowledges and agrees that it is entering into this Agreement: (i) having made such inspection and investigation of the Units, the Loan and the Company as it thinks fit; (ii) on the basis that it is acquiring the Units, the Loan and the Company "as is" and "where is"; (iii) knowing that the Purchase Price to be paid for the Units and the Company has been calculated on the basis that the risk of good title to all or any of the Units and the Company not passing under this Agreement is at Buyer's risk; (iv) having taken such professional advice as it considers appropriate; and (v) in the belief that since it is contracting with a company in administration the terms and conditions of this Agreement are reasonable.

3.6.Duty to Inform. Buyer shall keep Seller fully apprised of the status of Buyer’s efforts to obtain the Regulatory Approvals (including when any Regulatory Approvals are obtained) and shall fulfill any other conditions and obligations imposed upon Buyer hereunder or under the MSA.

3.7.Commission Qualifications. To the Buyer’s Knowledge, there is no reason for the Commissions to find that Buyer is not qualified to control VDUL or the Licenses, including reasons based on foreign ownership, and no unresolved regulatory compliance issues regarding Buyer or its affiliates that could delay the regulatory approval process or cause the Commission’s to deny the requested approvals.

3.8.Options. The Options (i) are fully transferable and assignable to Seller; (ii) are not subject to any restrictions, other than those expressly stated therein; and (iii) have not been exercised (in whole or in part), amended, modified, supplemented, cancelled, rescinded or terminated.

3.9.Solvency. Buyer represents and warrants that it is, and after the Effective Date will remain, solvent, and has not, and shall not, commence any bankruptcy, liquidation, reorganization or insolvency cases or proceedings. Buyer further represents and warrants that it, as the manager of the Company, shall not commence any bankruptcy, liquidation, reorganization or similar insolvency proceedings with respect to the Company.

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4. Covenants

4.1.Confidentiality. Administrators, Seller and Buyer, and their respective officers, directors, partners and affiliates, agree to keep the terms and conditions of this Agreement and the transactions contemplated hereby confidential, and each agree not to disclose to any party not a party to this Agreement any of the terms hereof, except where such disclosure is: (i) to its professional advisers, (ii) current and prospective financing sources, or (iii) is required by applicable law or the rules or standards of the U. S. Securities and Exchange Commission (the “SEC”), London Stock Exchange or the Listing Rules of the UK Listing Authority or the rules and requirements of any other competent regulatory body, which determination may be made in the good faith opinion of counsel to the party that is subject to the regulatory body in question. Buyer expressly acknowledges that it has received, and will receive in the future, Confidential Materials (as hereinafter defined), and that disclosure of such Confidential Materials to parties not a party to this Agreement would cause irreparable harm to Seller or Administrators. Except with the prior written consent of Seller or Administrators or as required by law, neither Buyer nor its officers, directors, partners or affiliates, shall (i) disclose any Confidential Materials to any party not a party to this Agreement or otherwise permitted hereunder, or (ii) use any Confidential Materials for any purpose except in connection with their efforts on behalf of Seller or Administrators, or as necessary to assist in the operation of VDUL pursuant to the MSA. Buyer and its officers, directors, partners and affiliates shall use their best efforts to preserve the confidentiality of all Confidential Materials, subject to the requirement for dissemination as may be required in the good faith opinion of its counsel as it relates to disclosure to meet regulatory body approval or with respect to the exceptions enumerated above. In the event that a party concludes that it is legally obligated to disclose any provision of this Agreement or any Confidential Materials, such party shall provide the other party with prompt written notice, and shall seek to limit the dissemination of such Confidential Materials. In the case of legal proceedings in which such disclosure is required, the parties shall cooperate to obtain an appropriate protective order or comply with such other procedural requirements limiting the disclosure of such material. The parties acknowledge that they may be required to disclose certain terms of this Agreement, or the entirety hereof, to the FCC and/or certain State Commissions in connection with applying for the Regulatory Approvals. Notwithstanding the foregoing, Administrators may disclose details of this Agreement to their appointors, advisers and any liquidator of Seller and also for the purpose of enforcing its terms, or if required to do so by any court. They may also include appropriate details in their administration records, accounts and returns.

Notwithstanding the foregoing,: (i) Seller or Administrators may disclose the amount of the Purchase Price, Final Purchase Price, Debenture and Options to any third party if, in the sole and absolute discretion of Seller or Administrators, such disclosure is necessary to enable Seller and/or Administrators to fulfill its/their obligations under the terms of any contract or arrangement with such third party (subject to Seller or Administrators’ undertaking to notify Buyer to the extent any such disclosure shall be made); and (ii) Buyer may disclose the terms of this Agreement at such time as its securities counsel is of the opinion that Buyer is required to file a Form 8-K with the U.S. Securities & Exchange Commission disclosing the material terms of this Agreement.

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"Confidential Materials" means any information or materials, whether written or oral, tangible or intangible, (i) concerning the Company, its subsidiaries, businesses, markets, products, prospects, finances and member(s), and (ii) which Buyer develops, or with respect to which Buyer gains access or knowledge, as a direct result of Seller’s, Administrators' or VDUL’s provision to Buyer of information and/or materials. Notwithstanding the foregoing, the Confidential Material shall not include (A) information that was known to, and material that was in the possession of, Buyer prior to the commencement of any negotiations with Seller and Administrators, (B) information that is or becomes generally known to, and materials possessed by, the public at large or entities involved in the business of VDUL (other than as a result of a breach of this agreement by Buyer or by disclosure of any other party which Buyer knows, or has reason to know, is under an obligation of confidentiality to Seller and Administrators), (C) information or material acquired by Buyer independently from a third party (other than a third party which Buyer knows, or has reason to know, is under an obligation of confidentiality to Seller and Administrators), and (D) information or material independently developed by Buyer and not as a result of the disclosure of information or provision of materials by Seller or Administrators. The Confidential Materials may include, but are not necessarily limited to, the following: concepts; techniques; data; documentation; research and development; customer lists; advertising plans; distribution networks; new product concepts; designs; patterns; sketches; planned introduction dates; processes; marketing procedures; "know-how"; marketing techniques and materials; development plans; names and other information related to strategic partners, suppliers, or vendors; pricing policies and strategic, business or financial information, including business plans and financial pro formas.

4.2.Reasonable Assistance. If requested by Seller or Administrators, Buyer shall give all reasonable assistance to Seller and/or Administrators in connection with any claim or loss actions, proceedings, claims and demands brought or made by or against Seller and/or Administrators which relate to the Units or the Company. Similarly, if requested by Buyer, Seller, to the extent that it is reasonably able and it is commercially reasonable for it to do so, will provide Buyer, at Buyer’s expense, reasonable access to inspect and copy any of Seller’s books and records that Buyer or its auditors may reasonably require in order to enable them to complete an audit or financial review of VDUL’s financial condition for calendar years 2006 and 2007 and with respect to operations through the Initial Closing Date in 2008.

4.3.Indemnification by Buyer. Buyer hereby agrees to defend, indemnify and hold harmless Seller, Administrators and their respective officers, managers, members, employees, agents, attorneys and affiliates from and against, and to promptly pay, all damages asserted against or incurred by reason of or resulting from:

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(a)a breach or misrepresentation, nonfulfillment of, or any failure to perform by Buyer of any representation, warranty or covenant contained herein or in any agreement executed pursuant hereto, including without limitation the Assignment and Assumption Agreement; or

(b)the failure of Buyer to pay, perform and discharge when due the Purchase Price or Final Purchase Price; or

(c)all liabilities incurred as a result of Buyer's operation of the Company from and after the Effective Date, including, without limitation, any liabilities or damages to Seller or Administrators resulting from Buyer’s failure to obtain all Regulatory Approvals prior to any Closing.

4.4.Name Change. Buyer hereby agrees to file all applications, notices, documents and instruments that are required to effect a legal change of the Company’s name to another name which does not contain the word “Vanco” with all applicable governmental and regulatory authorities (including but not limited to the Delaware Secretary of State, all other applicable Secretaries of State or the equivalent, the FCC, all applicable State Commissions and all applicable agencies having jurisdiction over tax or regulatory assessments of any kind). Immediately following the Initial Closing, Buyer shall use its best efforts, and shall initiate all necessary actions, including without limitation, making all filings and obtaining all required regulatory approvals, to effect the foregoing name change no later than one business day following the Final Closing Date, with the exception of states that require pre-approval of the Acquisition. For states that require pre-approval of the Acquisition, Buyer shall may such name change filings within two (2) business days of the receipt of each such state’s approval of the Acquisition. Seller agrees to cooperate with Buyer in effecting such name change. Buyer also agrees to notify all customers of VDUL of the name change at Buyer’s own expense.

4.5.Regulatory Approvals.

(a)It is Buyer's responsibility (at its own expense) to apply for and obtain any necessary or appropriate licenses, consents, approvals, permits, registrations or rights to use (including Regulatory Approvals) or have the benefit of any of the Units or the Company as soon as reasonably practicable consistent with Section 1.2 above. Buyer shall use its best efforts to obtain all such licenses, consents, approvals, permits, registrations, rights and Regulatory Approvals as soon as possible following the Effective Date. Failure to obtain any requisite license, consent, approval, permit, registration, right or Regulatory Approval or any failure to consummate the Closings shall not prejudice this Agreement or, in particular, the Purchase Price or Final Purchase Price payable under it (which shall not be repayable under any circumstances). To the extent that any of such approvals reasonably require the execution of documents or other assistance of Seller or the Company prior to or following the applicable Closing, Seller agrees to use its best efforts (to the extent it is able to) to cooperate with Buyer to obtain such approvals and to cause the Company to cooperate with Buyer as well. Buyer also agrees to cooperate fully with Seller and to pay all costs, fees and expenses with respect to any ongoing regulatory reporting obligations Seller may have with respect to licenses issued to VDUL following the Initial Closing and Final Closing ( as applicable).

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(b)(i) Notwithstanding anything to the contrary herein, Buyer hereby acknowledges and agrees that once paid, the Purchase Price and any other amounts paid, or to be paid, by the Buyer (or any of its subsidiaries or affiliates) in connection with the Acquisition, shall be non-refundable under any circumstance (including, without limitation, the failure of the Final Closing to occur), absent fraud by Seller; and (ii) in furtherance of clause (i) above, neither the Buyer nor any of its subsidiaries or affiliates shall have any right to, nor shall any such person assert any claim or otherwise take any action to, recoup, clawback, recover or otherwise obtain any refund of all or any portion of the Purchase Price or any other amounts paid, or to be paid, by the Buyer (or any of its subsidiaries or affiliates) in connection with the Acquisition, absent fraud by Seller.

4.6.Resignations. Prior to the Effective Date, each of the managers and officers of VDUL have given Buyer notice of their intent to resign from all such positions. The parties hereby agree to accept each such resignation as of the Initial Closing Date. The Administrators shall appoint Buyer as replacement manager and appoint Patrick C. Shutt as CEO, George King as President, Secretary, Robert Pollan as COO and Jim McDevitt as COO, Treasurer of VDUL.

4.7.Transition Services Agreement.  (a) Buyer expressly acknowledges the existence and effect of that certain Transition Services Agreement between the Company and Vanco US LLC (“VUS”) dated May 23, 2008 (the “TSA”). The parties acknowledge that a dispute has arisen under the TSA between Seller and VDUL on one hand and VUS on the other with respect to a certain lease relating to commercial office space in Chicago, Illinois (the “S. Wacker Lease”). The terms of the TSA purportedly include an obligation of VUS to assume the S. Wacker Lease. The parties hereby agree that they will use commercially reasonable efforts, and Buyer shall cause VDUL to use commercially reasonable efforts, to cause VUS to take full assignment of the S. Wacker Lease, and, until such assignment is consummated, to otherwise cause VUS to continue making at least fifty percent (50%) of the remaining lease payments to VDUL through the term of the S. Wacker Lease. Further, the parties hereby agree that, after the Effective Date, (i) any lease payments or other such consideration received by VDUL from VUS or its affiliates in connection with the S. Wacker Lease shall constitute “Vanco US Payments” (as such term is defined in the Debenture) and (ii) immediately upon receipt of any and all Vanco US Payments, Buyer shall deliver, or cause VDUL to deliver, evidence of such payments to Seller.

(b) Without prejudice to the express exclusion of representations, warranties and liability of Seller and the Administrators set forth in Sections 2 and 7 hereof, the parties further acknowledge that the “USX Portal” and associated “Intellectual Property” that has been used by VDUL for purposes of its historic operations is the portal that has been retained by VDUL, as acknowledged in the TSA, as distinguished from the “Net Direct Portal” that has been used by VUS with respect to its business; for the avoidance of doubt, to the extent that the USX Portal has been marketed under the name “net direct portal,” this has no bearing on the fact that the USX Portal is the property of VDUL and ownership and part of the assets underlying VDUL to be enjoyed by Buyer in connection with this Agreement.

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5. Provision of Assistance for Seller and Administrators

Buyer will permit Seller and Administrators and their authorized representatives to inspect the books and records of the Company at any time following the Effective Date for the purpose of completing the administration and will preserve and keep safe such records and not destroy them. The Buyer will also permit Seller, Administrators and any other person to inspect and copy its books and records and produce originals of such books and records and will preserve and keep safe such books and records and not destroy them. Seller and the Administrators agree to maintain the confidentiality of the books and records of the Company, subject to the Confidential Information standards set forth above.

6. Exclusion of Personal Liability

6.1.Administrators are agents of Seller and have been acting in that capacity in the negotiation, preparation and implementation of this Agreement.

6.2.Neither Administrators nor their firm, staff, employees, advisers and agents shall incur personal liability under this Agreement or any other deed, instrument or document entered into pursuant to it and any liability to which Administrators or their staff, employees, advisers and agents would otherwise be subject (whether in contract, tort or otherwise) is expressly excluded.

6.3.Any right under this Agreement which is for the benefit of Administrators (and in particular, without prejudice to the generality of the foregoing, any right to be indemnified by Buyer and the rights granted hereunder and all rights to receive any payment from Buyer) shall also be for the benefit of, and shall be exercisable by, any subsequent administrator, liquidator or other insolvency practitioner (a "Subsequent Appointee") appointed in respect of Seller and so that, as regards such Subsequent Appointee, the relevant clause shall apply mutatis mutandis so that references to Administrators shall be treated as references to such Subsequent Appointee.

7. Exclusion of Liability

7.1.All conditions, representations (including pre-contractual negligent and innocent misrepresentations) and warranties express or implied, and whether statutory or otherwise, relating to all or any of the Units and the Company are expressly excluded, unless specified in this Agreement. In particular, but without limitation, all representations and warranties as to title, quiet possession, enjoyment, quality, condition, state or description of the Units and the Company or their fitness or suitability for any purpose whatsoever or whether any necessary consents for the assignment or transfer of the Units and the Company or any of them will be forthcoming are expressly excluded, unless specified in this Agreement.

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7.2.Any claim of Buyer, or of any person claiming through it, against Seller shall take effect as an unsecured claim and not as an administration expense.

7.3.The exclusions of liability in this Agreement shall:

(a)arise and continue notwithstanding the termination of Administrators' agency before or after the signing of this Agreement and shall operate as waivers of any claims in tort as well as under the law of contract;

(b)be in addition to and not in substitution for and notwithstanding any right of indemnity or relief otherwise available; and

(c)continue after each of the Closings.

7.4.Nothing in this Agreement shall operate to restrict or affect in any way any right of Administrators to be indemnified, or to exercise a lien howsoever.

7.5.In the absence of an express provision to the contrary, nothing in this Agreement shall require Seller or Administrators to carry out or continue to carry out any arrangement or contract, whether single or of continuing effect, with third parties and whether in relation to the Units, the Loan, Company or otherwise.

7.6.Any claim against Seller and/or against Administrators (or their firm, partners, employees, agents, advisers or representatives) shall in any event and in addition to the exclusions of liability contained in this Agreement, be irrevocably waived by Buyer unless made in writing by notice to Administrators within sixty (60) days after the Initial Closing Date.

7.7.Without prejudice to each and every provision of this Agreement, any claim of Buyer, or of any person claiming through, under or in relation to Buyer shall not in any circumstances exceed the lower of the Purchase Price and the net realizable value of the Units available to Administrators in the administration of Seller.

7.8.The exclusions and limitations contained in this Agreement shall not apply in the case of any fraudulent misrepresentation made by Seller or Administrators or their respective agents or insofar as any action against any of them is based upon the fraud of Seller or Administrators or their respective agents.

7.9.Administrators are party to this Agreement solely to obtain the benefit of the exclusions and limitations on liability and undertakings in their favor.

8. Miscellaneous

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8.1.Governing Law. This Agreement shall be governed in all respects by the laws of the State of Delaware, without regard to any provisions thereof relating to conflicts of laws among different jurisdictions.

8.2.Survival. The representations and warranties made by Buyer herein shall survive the Initial Closing for a period of one year, whereupon they shall cease and be of no further force and effect.

8.3.Successors and Assigns. This Agreement shall not be assignable by Buyer without the express prior written consent of Seller and Administrators. This Agreement may be assigned by: (i) Seller or Administrators to an affiliate of Seller; and (ii) by Buyer to an affiliate of Buyer. This Agreement shall not be construed so as to confer any right or benefit on any party not a party hereto.

8.4.Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof and supersedes all prior agreements and understandings relating thereto. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

8.5.No Set Off. Without prejudice to the other provisions of this Agreement, Buyer shall not be entitled to set off any claims it may have against Seller or Administrators or any of them or exercise any lien whatsoever against or make any deduction from any money (including cheques or other negotiable instruments) payable to Seller or Administrators or any of them pursuant to this Agreement and such money shall be paid forthwith in full as it becomes due in accordance with the terms of this Agreement.

8.6.Notices, Etc. All notices under this Agreement shall be sufficiently given for all purposes if made in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, facsimile or other electronic transmission, to following addresses and numbers. Notices to Seller shall be addressed to:

Vanco plc (in administration)

Holborn Gate

26 Southampton Buildings

London WC2A 1PB

Fax: +44(0) 203 077 0599

Attn: The Administrators

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Notices to Administrators shall be addressed to:

The Administrators (in administration)

Holborn Gate

26 Southampton Buildings

London WC2A 1PB

Fax: +44(0) 203 077 0599

Attn: Simon Granger and Chad Griffin

Each with a copy to:

Bingham McCutchen LLP

2020 K Street NW

Washington, DC 20006

Fax: 202-373-6001

Attn: Andrew M. Ray, Esq.

or at such other address and to the attention to such other person as Seller and/or Administrators may designate by written notice to Buyer. Notices to Buyer shall be addressed to:

c/o Capital Growth Systems, Inc.

500 West Madison Street, Suite 2060

Chicago, IL 60661

Fax: 312-673-2422

Attn: Mr. Patrick Shutt, CEO

with a copy to:

Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, IL 60601

Fax: 312-527-3194

Attn: Mitchell Goldsmith, Esq.

or at such other address and to the attention of such other person as Buyer may designate by written notice to Seller and Administrators.

8.7.Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party upon any breach or default of the other party under this Agreement shall impair any such right, power or remedy of such first party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement.

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8.8.Successors. For the purposes of interpreting this Agreement, Administrators shall be construed as being to Administrators and any person who is appointed as an Administrator in substitution for any Administrator or as an additional Administrator in conjunction with the Administrators.

8.9.Expenses. Except as set forth in Section 4.5, Seller, Administrators and Buyer shall each bear the expenses and legal fees incurred on their own behalf with respect to this Agreement and the transactions contemplated hereby. Seller (not the Company) shall be responsible for all brokerage commissions to Houlihan Lokey et. al. and with respect to all legal and closing costs associated with Seller with respect to the transactions contemplated herein. Buyer shall be responsible and liable for the fees of any counsel retained by Buyer to prepare and prosecute the applications, notifications and other filings required to obtain the Regulatory Approvals or the waiver thereof.

8.10.Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by only one party, which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument and shall be binding whether in the form of original, photocopy, facsimile or email pdf.

8.11.Severability; Enforcement. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without such provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. The parties hereto agree that irreparable damage for which money damages would not be an adequate remedy would occur in the event that any of the provision of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that, in addition to any other remedies a party may have at law or equity, the parties shall be entitled to seek an injunction of injunctions to prevent such breached of this Agreement and to enforce specifically the terms hereof.

8.12.Interpretation. Article titles and headings to sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. The Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein. No party shall benefit from any rule construing this Agreement against that party as drafter, and it is acknowledged that the document is jointly drafted.

8.13.Termination. Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated at any time prior to the Initial Closing Date:

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(a)by the mutual consent of Buyer, Administrators and Seller;

(b)by Seller or Administrators, in their sole and absolute discretion, in the event of any material breach by Buyer of any of Buyer’s agreements, representations or warranties contained herein and Buyer’s failure to cure the same within ten (10) days of notice of breach if such breach is susceptible of a cure; or

(c)by Seller or Administrators, in their sole and absolute discretion, if a Buyer Material Adverse Effect occurs and Buyer fails to remedy the events causing the same within two (2) days following delivery of notice from Seller.

8.14.Control. Nothing in this Agreement permits, or will be deemed to permit, Buyer to exercise de facto or de jure control over the Company prior to Initial Closing.

[signatures appear on the following page]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

“Seller”

Vanco plc (in administration) represented by ________________ one of its

Administrators (without personal liability)

By: _________________________

Name: ______________________

Title: ________________________

"Administrators"

On behalf of the Administrators (without personal liability)

By: _________________________

Name: ______________________

Title: ________________________

“Buyer”

Capital Growth Acquisition, Inc.

By: _________________________

Name:________________________

Title: ________________________

EX-10.2

Exhibit 10.2

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN SECTION 9 OF THIS DEBENTURE AND THE OTHER DEBENTURE INTERCREDITOR AGREEMENT (AS DEFINED BELOW) AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE OTHER DEBENTURE INTERCREDITOR AGREEMENT AND SECTION 9 HEREOF.

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

Original Issue Date: November ___, 2008

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

$3,000,000.00

SUBORDINATED UNSECURED CONVERTIBLE DEBENTURE

DUE MAY ___, 2011

THIS DEBENTURE is a duly authorized and validly issued Subordinated Unsecured Convertible Debenture of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Subordinated Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date (as that term is defined in the ILPA) occurs before such date, this Debenture will be due on the date thirty months from the Original Issue Date, which date may be extended on a month to month basis with the prior written consent of the Holder until the Debenture is paid in full (the “Extended Termination Date”).

FOR VALUE RECEIVED, the Company promises to pay to Vanco plc or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $3,000,000.00, as may be increased in accordance with the terms hereof, on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder; provided, however, that in no event shall payment be due under this Debenture until: (A) the Payment Conditions are satisfied and (B) payment to the Holder is permitted under the Other Debenture Intercreditor Agreement and Section 9 hereof. Prior to making any such payment, the Company’s Chief Financial Officer and Chief Executive Officer shall provide written certification to the holders of the Other Debentures that the Payment Conditions have been satisfied. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, the following terms shall have the following meanings:

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

“Authorized Share Approval” shall mean the date following the date hereof that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of Common Stock (subject to adjustment to account for any forward or reverse split).

“Archer Intercreditor Agreement” shall mean the intercreditor agreement among ACF, CGS, L.L.C., the holders of the Other Debentures, Holder and Company.

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

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

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

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

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“Cash Balance” means, at any time, unrestricted cash and cash equivalents in of the Company and its consolidated Subsidiaries in US Dollars on deposit with domestic and foreign commercial banks.

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

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

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

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

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

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

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

‘Debentures” shall mean this Debenture and any successor debentures reissued as a result of the fractionalization of this Debenture.

“EBITDA” means for the applicable period, the net income (or net loss) of the Company and its consolidated Subsidiaries, determined in accordance with GAAP, consistently applied, plus (i) any provision for (or less any benefit from) income taxes, (ii) any deduction for interest expense, net of interest income, and (ii) depreciation and amortization expense.

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

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

“ILPA” shall mean the Interest and Loan Purchase Agreement between the initial Holder of this Debenture and Capital Growth Acquisition, Inc.

“Mandatory Default Amount” means the outstanding principal amount of this Debenture.

“March Debentures” means the amended and restated debentures issued by the Company in exchange or substitution for any of the debentures of the Company that were originally issued on March 11, 2008.

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

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

“November Debentures” shall mean the original issue discount secured convertible debentures issued by the Company in November, 2008 and not comprising the March Debentures.

“Other Debentures” shall mean collectively, the March Debentures and the November Debentures.

“Other Debenture Intercreditor Agreement” shall mean the intercreditor and subordination agreement among the holders of the Other Debentures and the initial holder of this Debenture.

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

“Payment Conditions” means, after the Extended Termination Date, at the time of payment (i) the Cash Balance of the Company and its Subsidiaries is at least $5,000,000 and (ii) for the 12 full calendar months immediately prior to the payment date, the ratio of the then outstanding principal amount of the Other Debentures to EBITDA for such 12-month period to shall be 2:1 or less. By way of any example, in order to make payments on this Debenture, if the then outstanding principal amount of the Other Debentures is $20,000,000, the EBITDA for the 12-month period prior to such payment date must be $10,000,000 or greater. 

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

“Senior Creditor” means ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the lenders under the Senior Loan Agreement and any other holder of Senior Obligations (as such term is defined in the Archer Intercreditor Agreement) from time to time.

“Senior Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries, as borrowers, ACF CGS, L.L.C and the other lenders named therein, and ACF CGS, L.L.C, as agent for such lenders.

“Senior Loan Documents” means all current and future documents relating to the Senior Obligations, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Senior Obligations (as hereafter defined), as the same may be amended, modified or restated.

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“Senior Obligations” means (a) all liabilities of the Company together with any of its subsidiaries (each a “Borrower” and collectively, the “Borrowers”) to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents, whether such amounts are due or not due, direct or indirect, absolute or contingent, including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses, and further including (i) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Borrower or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Borrower in any Bankruptcy Event, (ii) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Obligations, or the protection of, or realization upon, any collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Borrower in connection with any Bankruptcy Event, (iii) all fees, charges, and indemnities owing by any Borrower to Senior Creditor under or in connection with the Senior Loan Documents, (iv) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Borrowers in connection with a Bankruptcy Event; and (b) all indebtedness and obligations of Borrowers with respect to each Other Debenture, including, without limitation, all Senior Claims (as such term is defined in the Other Debenture Intercreditor Agreement).

“Subordinated Obligations”means all indebtedness, fees, expenses, obligations and liabilities of Company to the Holder, whether now existing or hereafter incurred or created, under or with respect to this Debenture, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

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

“Subordinated Obligations”means all indebtedness, fees, expenses, obligations and liabilities of Company to the Holder, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

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

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

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Section 2.Adjustment to Principal Amount of this Debenture. Vanco Direct USA, LLC (“VDUL”) has entered into a sublease dated March 22, 2006 (“Sublease”) with Orbitz, LLC for the occupancy of space at 200 S. Wacker, 16th Floor, Chicago, Illinois (the “Premises”). Any amounts collected by VDUL from Vanco US, LLC with respect to VDUL's sublease of the Premises during the term of the Sublease to Vanco US, LLC, of which ____ months are remaining on such Sublease, or any amounts otherwise paid by Vanco US, LLC directly to or for the benefit of Orbitz, LLC regarding the Premises from the date of this Debenture through the end of the Sublease is hereinafter referred to as the “Vanco US Payments.” Notwithstanding anything to the contrary contained in this Debenture, (i) the principal amount of this Debenture shall be increased on a dollar for dollar basis in an amount equal to the Vanco US Payments paid through the Maturity Date, subject to a maximum increase of $1,000,000, and (ii) on the date on which Vanco US, LLC takes assignment of the Sublease from VDUL and such assignment is consented to by Orbitz, LLC (the “Assignment Date”), the principal amount of this Debenture shall be increased by an amount equal to the difference of (x) $1,000,000 less (y) the aggregate amount of Vanco US Payments paid through the Assignment Date (the “Balloon Amount”). Further, in the event that this Debenture is converted in whole into shares of Common Stock in accordance with Section 4 below from time to time prior to the earlier of (A) the date on which all of the Vanco US Payments equal $1,000,000 and (B) the Assignment Date, this Debenture shall remain outstanding and all further Vanco US Payments and the Balloon Amount (as applicable) shall thereafter increase the amount of this Debenture on a dollar for dollar basis. For purposes of clarity, subject to the terms and conditions herein, the Holder shall be entitled to convert all Vanco US Payments immediately following each increase of the Debenture described in this Section 2.

Section 3.Registration of Transfers and Exchanges.

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

b)Investment Representations. Holder understands that this Debenture and the shares of Common Stock into which this Debenture is convertible (collectively, “Securities”) are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law. At the time Holder was offered the Securities, Holder was, and as of the date hereof Holder is, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Holder is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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

Section 4.Conversion.

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

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

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

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d)Mechanics of Conversion.

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

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the twelve month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On the twelve month anniversary of the Original Issue Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(d) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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

iv.Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained.

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v.Reservation of Shares Issuable Upon Conversion. After the Authorized Share Approval, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

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

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

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Section 5.Certain Adjustments.

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

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

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

d)Notice to the Holder.

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

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

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Section 6.(Intentionally Omitted).

Section 7.(Intentionally Omitted).

Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body, provided however if any of the following events would constitute a breach with respect to either the Archer Intercreditor Agreement or the Other Debenture Intercreditor Agreement, then the existence of such event shall not constitute an Event of Default hereunder until such point in time as the indebtedness with respect to any of the Other Debentures is accelerated): any default in the payment of the principal amount of this Debenture when due and permitted to be paid hereunder and under the Other Debenture Intercreditor Agreement.

b)Remedies Upon Event of Default. Subject to the provisions of Section 9 hereof and the provisions of the Other Debenture Intercreditor Agreement, commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.Subordination.

a)The Holder of this Debenture, by its acceptance of this Debenture, agrees that the Subordinated Obligations are subordinated in right of payment, to the extent and in the manner provided in this Section 9, to the prior payment in full in cash of all Senior Obligations (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that this subordination is for the benefit of the holders of Senior Obligations. Each holder of Senior Obligations, whether now outstanding or hereafter incurred, shall be deemed to have acquired such Senior Obligations in reliance upon the terms and provisions of this Section 9.

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b)The Holder, by its acceptance of this Debenture, agrees that no payment in respect of the Subordinated Obligations, whether as principal, interest or otherwise, and whether in cash, securities or other property, shall be made by or on behalf of Company, or received, accepted or demanded, directly or indirectly, by or on behalf of any holder of Subordinated Obligations, at any time prior to payment in full in cash of the Senior Obligations.

c)Each holder of Subordinated Obligations agrees not to ask, demand, sue for or take or receive from the Company in cash, securities or other property or by setoff, purchase or redemption (including, without limitation, from or by way of collateral), payment of all or any part of the Subordinated Obligations. In the event that any payment by the Company of any kind or character, whether in cash, securities or other property, and whether directly, by purchase, redemption, exercise of any right of setoff or otherwise, shall be received by or on behalf of Holder or any affiliate thereof at a time when such payment is prohibited under this Section 9, such payment or distribution shall be held by such Holder or affiliate in trust (segregated from other property of such Holder or affiliate) for the benefit of, and shall forthwith be paid over to, the holders of Senior Obligations to be applied to the balance of the Senior Obligations, until paid in full.

d)Company shall not give, or permit to be given, and no holder of Subordinated Obligations shall receive, accept or demand, (i) any security of any nature whatsoever for any Subordinated Obligations on any property or assets, whether now existing or hereafter acquired, of the Company, any of its subsidiaries or any other obligor, or (ii) any guarantee of any Subordinated Obligations, of any nature whatsoever, by the Company, any subsidiary of the Company, or any other person.

e)The holders of the Senior Obligations have made or will make loans and extend credit to Company in reliance on this Section 9 and the other terms of this Debenture and the documents executed in connection with this Debenture and are entitled to the benefits of the provisions hereof and thereof. Accordingly, the holders of the Senior Obligations shall be entitled to enforce any such provision against the Holder or the Company and its subsidiaries.

f)The Holder agrees that it will not contest the validity, perfection, priority or enforceability of the liens upon any collateral securing the Senior Obligations, and that, as between the holders of Senior Obligations and the Holder, the terms of this Section 9 shall govern even if part or all of the Senior Obligations or the liens securing payment and performance thereof are not perfected or are avoided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise.

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Section 10.Miscellaneous.

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

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.

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

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

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

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

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

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

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

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[SIGNATURE PAGES FOLLOW]

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

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title:
Facsimile No. for delivery of Notices:___________________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Subordinated Convertible Debenture of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:

Account No:

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Schedule 1

CONVERSION SCHEDULE

The Subordinated Convertible Debenture in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

Date of Conversion (or for first entry, Original Issue Date) Amount of Conversion Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount) Company Attest

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EX-10.3 4 v132473_ex10-3.htm

Exhibit 10.3

MANAGEMENT SERVICES AGREEMENT

This Management Services Agreement (the “Agreement”) is entered into this ___ day of November, 2008, by and among Vanco plc (in administration), a company incorporated under the laws of England and Wales with registered number 3470117 (“Vanco”), Simon John Granger and Chad Griffin, each an insolvency practitioner of FTI Consulting Limited, a company with its principal offices at Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB, in their respective capacities as joint administrators of Vanco (together the “Administrators,” which term shall include their successors in office), and Capital Growth Acquisition, Inc., a corporation organized under the laws of Delaware (“Manager”). Individually, each of Manager, the Administrator, and Vanco is a “Party” and collectively they are the “Parties.”

WHEREAS, Administrators were appointed to act as joint administrators of Vanco on May 25, 2008 by Lloyds TSB Bank plc in accordance with paragraph 14 to Schedule B1 to the (English) Insolvency Act 1986;

WHEREAS, Vanco has inter alia one U.S. subsidiary, Vanco Direct USA LLC (“VDUL”), a Delaware limited liability company which holds domestic and international Section 214 authorizations from the U.S. Federal Communications Commission (“FCC”) and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions (the “State Commissions” and, collectively with the FCC, the “Commissions”) (such authorizations and certificates collectively referred to as the “Licenses”);

WHEREAS, Manager has made a bid to purchase the limited liability company interests of VDUL from Vanco, which bid has been approved by the Administrators;

WHEREAS, Vanco has entered into an Interest Purchase Agreement with Manager of even date herewith for the sale of the limited liability company interests in VDUL (the “Purchase Agreement”), pursuant to which Manager will acquire VDUL in a manner consistent with applicable law;

WHEREAS, the Parties acknowledge and agree that certain Regulatory Approvals must be obtained before control of VDUL can be transferred to Manager; the effective date of the closing of the Purchase Agreement pursuant to which the limited liability company interests of VDUL shall be conveyed to Manager is the “Closing Date.”

WHEREAS, Vanco has retained de facto and de jure control of VDUL pending receipt of all Regulatory Approvals;

WHEREAS, in order to ensure uninterrupted service to customers of the VDUL Systems pending issuance of the approvals, and to avoid associated potential disruption to customers, the Parties desire to enter into an arrangement for Manager to manage VDUL and VDUL’s network and operations in the United States that is the subject of the Licenses (the “VDUL Systems”), at all times subject to the oversight, review, supervision and control of Vanco;

WHEREAS, the parties hereto believe it to be in their mutual best interests for Manager to provide certain services as described below to VDUL until the requisite Regulatory Approvals can be obtained and the proposed transaction can be completed;

WHEREAS, Vanco and Manager desire that Manager provide management services to VDUL in conformity with the rules and policies of the FCC, the State Commissions, and the terms and conditions of the Purchase Agreement and this Agreement; and

WHEREAS, Manager desires to serve as the manager of VDUL and the VDUL Systems pursuant to the terms set forth in this Agreement;

NOW THEREFORE, in consideration of the mutual promises contained herein, the sufficiency of which is acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. Each term capitalized herein and not otherwise defined shall have the meaning assigned to it in the Purchase Agreement.

“Communications Licenses” means those licenses, registrations, authorizations or other authorities which permit VDUL to provide regulated interstate, intrastate and local regulated telecommunications services.

“Confidential Materials” means any information or materials, whether written or oral, tangible or intangible; (i) concerning Vanco, its subsidiaries, businesses, markets, products, prospects, finances and member(s), and (ii) which Manager develops, or with respect to which Manager gains access or knowledge, as a direct result of Vanco’s, Administrators' or VDUL’s provision to Manager of information and/or materials. Notwithstanding the foregoing, the Confidential Material shall not include (A) information that was known to, and material that was in the possession of, Manager prior to the commencement of any negotiations with Vanco and Administrators, (B) information that is or becomes generally known to, and materials possessed by, the public at large or entities involved in the business of VDUL (other than as a result of a breach of this agreement by Manager or by disclosure of any other party which Manager knows, or has reason to know, is under an obligation of confidentiality to Vanco and Administrators), (C) information or material acquired by Manager independently from a third party (other than a third party that Manager knows, or has reason to know, is under an obligation of confidentiality to Vanco and Administrators), and (D) information or material independently developed by Manager and not as a result of the disclosure of information or provision of materials by Vanco or Administrators. The Confidential Materials may include, but are not necessarily limited to, concepts; techniques; data; documentation; research and development; customer lists; advertising plans; distribution networks; new product concepts; designs; patterns; sketches; planned introduction dates; processes; marketing procedures; "know-how"; marketing techniques and materials; development plans; names and other information related to strategic partners, suppliers, or vendors; pricing policies and strategic, business or financial information, including business plans and financial pro formas.

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ARTICLE II

APPOINTMENT OF MANAGER

Section 2.1 Appointment, Authority, Obligations of Manager.

(a) Manager hereby agrees, subject to the terms, conditions, and limitations set forth in this Agreement, to provide supervision and management services to VDUL so as to meet any and all ongoing obligations associated with the VDUL Systems and the services provided using the VDUL Systems (the “VDUL Services,” and together with the VDUL Systems, the “VDUL Business”), including without limitation obligations of VDUL to provide service to the customers pursuant to existing contractual relationships and to any new customers that may from time to time during the Term of this Agreement purchase such services. The duties of Manager under this Agreement shall include doing all things commercially reasonable and necessary to carry out the supervision, operation and management of the VDUL Business in a manner, and at a level of service quality, substantially consistent with past practices and the manner and level of service quality in which the VDUL Business has been operated and services have been provided by VDUL prior to the Effective Date of this Agreement.

(b) Manager hereby accepts such appointment and agrees to perform its obligations and responsibilities hereunder and agrees to devote such time and resources as are necessary to ensure proper and efficient operation of VDUL and the VDUL Business, and shall make available to Vanco the full range of its expertise and experience.

(c) Vanco hereby grants to Manager as much access as Vanco and VDUL has to all facilities, equipment, personnel, books, records and operational assets as is necessary to permit Manager to perform its obligations hereunder.

ARTICLE III

MANAGEMENT OF THE VDUL BUSINESS

Section 3.l Management of the VDUL Business.

(a) During the Term, the Manager shall have the duty to manage the VDUL Business authorized under the Communications Licenses on behalf of Vanco consistent with the provisions of this Agreement and subject to Vanco’s continued ownership, control and reasonable supervision and direction. Upon reasonable request, Manager hereby agrees to report to Vanco’s Administrators the status of the operations of the VDUL Business.

(b) Vanco and Manager desire that this Agreement and the performance of Vanco’s and Manager’s obligations hereunder be in full compliance with (i) the terms and conditions of the Communications Licenses; (ii) the Communications Act of 1934, as amended (the “Act”); (iii) all applicable rules, regulations and policies of the Commissions; and (iv) any other applicable federal, state and local law or regulation. It is expressly understood by Vanco and Manager that nothing in this Agreement is intended to give Manager any right which would be deemed to constitute a transfer of control (as is defined in the Act and/or any applicable FCC or state rules, regulations or case law) by Vanco of any of the Communications Licenses from Vanco to Manager to the extent prohibited by the applicable federal and state law, or the rules or regulations of any Commission.

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(c) Manager acknowledges and agrees that Vanco has certain rights and obligations pursuant to the Communications Licenses with respect to activities authorized thereunder, which include compliance with the Act, and the rules, regulations, and policies of the Commissions. The services provided by Manager hereunder are not intended to diminish or restrict Vanco’s compliance with its obligations under applicable law or before the Commissions, and this Agreement shall not be construed to diminish or interfere with the obligations of Vanco or its ability to comply with the rules, regulations or directives of any governmental or jurisdictional authority with respect to the Communications Licenses or the VDUL Business.

(d) Vanco shall have unfettered access and authority to inspect the books and records, equipment and related hardware that is required to transmit and/or receive telecommunications, including but not limited to network facilities, switching equipment, customer premises equipment and testing equipment, for any reason and at any time, including but not limited to access for purposes of determining whether, under the Manager’s supervision and management, the VDUL Business is operating in a manner that violates the terms of this Agreement, the Act or the Commissions’ rules, regulations, or policies, or is otherwise operating in a harmful or unlawful manner.

(e) Manager shall be responsible for providing the management services in compliance with VDUL’s existing tariffs and service contracts, and all applicable laws, including, without limitation, tariffs in effect from time to time. Manager shall perform the management services in a professional manner and in accordance with all applicable professional or industry standards.

ARTICLE IV

PAYMENT OF COSTS AND MANAGER’S COMPENSATION

Section 4.1 Payment of Costs. As of the Effective Date, Manager shall be responsible for payment by VDUL of all costs and expenses (the “Costs”) incurred or due with respect to the maintenance and operation of VDUL, the VDUL Systems, the compensation of VDUL’s employees, and the provision of the VDUL Services, and shall be given full access and signatory authority to all VDUL financial accounts (the “Accounts”), including VDUL funds as of the Effective Date and all revenues collected by VDUL (or on behalf of VDUL by Manager) during the Term of this Agreement in connection with the operation of the VDUL Business (the “Revenue” and together with the Accounts, the “VDUL Funds”). VDUL hereby authorizes Manager to use the VDUL Funds to pay its Costs and the Monthly Management Fee (as defined below).

Section 4.2 Monthly Management Fee. As consideration for Manager providing the management services described herein, Vanco agrees that Manager shall be paid out of the VDUL Funds a monthly fee (“Monthly Management Fee”) equal to 30% of the Revenues received each month; provided that, in any month during the Term in which the Monthly Management Fee would otherwise exceed VDUL’s Revenues less its Costs (the “Net Revenue”), the Monthly Management Fee shall be no greater than the Net Revenue, if any, and VDUL shall not have any obligation to pay Manager any greater amount. The Monthly Management Fee shall be paid solely from the VDUL Funds on the last business day of each month, with the final Monthly Management Fee being paid at the end of the Term (as defined below).

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Section 4.3 Status Reports. At Vanco’s request, Manager shall provide Vanco with updates on the status of the operation of the VDUL Business and the overall financial condition of VDUL.

Section 4.4 Books and Records. Manager shall create and maintain complete and accurate records of all financial and other material transactions relating to performance of this Agreement in a manner consistent with records prepared and maintained by Manager in the ordinary course of business and with U.S. generally accepted accounting principles. At its discretion and expense, Vanco may conduct periodic audits of Vanco’s records relating to performance of this Agreement and its operation and management of the VDUL Business.

ARTICLE V

COMPLIANCE WITH APPLICABLE LAWS

Section 5.1 Compliance with Applicable Laws and Regulations.

(a) Manager agrees that, in connection with providing the management services hereunder, it shall comply in all material respects with all applicable laws, ordinances, rules, regulations, and restrictions, including but not limited to the Act, the FCC and State Commission rules, regulations, and policies, and local ordinances, and shall respond promptly to all regulatory correspondence or inquiries and any and all adversarial pleadings of whatever nature filed with the Commissions or any other governmental authority and will promptly notify Vanco of the receipt thereof.

(b) Vanco and Manager agree that they shall not take any action that would violate any Communications License or that could reasonably be expected to cause the cancellation, revocation, or adverse modification of any Communications License or that could be expected to otherwise impair the good standing or renewal of any License.

(c) Manager acknowledges and agrees that Vanco has certain rights and obligations pursuant to the Communications Licenses with respect to activities authorized thereunder, which include compliance with the Act and similar state statutes, and the rules, regulations, and policies of the Commissions. The services provided by Manager hereunder are not intended to diminish or restrict Vanco’s compliance with its respective obligations under applicable law or before the Commissions, and this Agreement shall not be construed to diminish or interfere with any Vanco’s obligation or ability to comply with the rules, regulations or directives of any governmental or jurisdictional authority with respect to the Communications Licenses. On behalf of Vanco, Manager shall take or cause to be taken all reasonable and appropriate steps necessary to keep the Communications Licenses in full force and effect and in good standing.

(d) Manager and Vanco recognize that VDUL, and ultimately Vanco, remain responsible for compliance with the terms of the Communications Licenses. In that regard, the Manager shall not, without the prior consent of Vanco’s Administrators, such consent not to be unreasonably withheld if consistent with past practice of operations by VDUL, take the following actions:

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(i) enter into, modify, intentionally breach or terminate any material agreement relating to the assets managed by Manager, other than in the ordinary course of business;

(ii) sell, assign, lease, transfer or otherwise dispose of any material asset or purchase or otherwise acquire any assets for VDUL except for non-material assets acquired in the ordinary course of business;

(iii) initiate, settle or terminate any material litigation relating to the regulated aspects of the VDUL Business or waive any material rights of VDUL or Vanco;

(iv) demote or terminate any employee of VDUL other than with respect to headcount reduction amounts previously disclosed to Manager;

(v) hire any employee for VDUL; or

(vi) cause VDUL to take any action or neglect to take any action which would constitute a default under this Agreement or the Purchase Agreement.

(e)   The parties hereby agree that Manager shall request Vanco’s consent to the actions referenced in Section 5.1(d) above in writing to Vanco’s Administrators.  For purposes of this Section 5, notice and consent by any party can be achieved by electronic mail. Unless Vanco refuses in writing to grant consent within two (2) business days of receipt of a request for consent by Manager, Vanco’s consent will be deemed granted.

(f) Vanco shall be responsible for the filing of all applications, reports, correspondence and other documentation with the Commissions relating to the VDUL Business; provided, however, that Manager shall assist Vanco by preparing such filings for Vanco’s review; and provided, further, that Manager shall reimburse Vanco out of the VDUL Funds for all of its reasonable out-of-pocket legal fees and other expenses incurred in connection with such applications, correspondence and other related matters, to the extent that any such review results in material changes to any of the materials prepared by Manager. Manager shall provide upon Vanco’s reasonable request any information which will enable it to review and complete any records and reports required by the Commissions and other federal, state or local government authorities.

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ARTICLE VI

TERM

Section 6.1 Term. The term (“Term”) of this Agreement shall commence upon the “Initial Closing” as that term is defined in the IPA (the “MSA Effective Date”) and automatically end on the earlier of (i) the Closing Date; or (ii) termination of the Purchase Agreement pursuant to Section 8.13 thereof.

Section 6.2 Automatic Termination. This Agreement shall automatically terminate if any Commission issues a formal written order, which is final and non-appealable, that Manager is precluded from performing its duties hereunder and any period of time provided by such Commission to Manager to remedy such situation has expired.

Section 6.3 Performance After Termination. After receipt of written notice of termination, but prior to the effective date of such termination, Manager shall continue to perform under this Agreement unless specifically instructed to discontinue such performance.

Section 6.4 Termination Transition. On the effective date of any termination, or before such date if so instructed, Manager shall relinquish to Vanco, or its designee, possession of all property of VDUL, including but not limited to the VDUL Systems, The VDUL Funds, and all documents, data and records pertaining to the VDUL Business, including without limitation complete records of all financial and other material transactions relating to Manager’s performance of this Agreement. Notwithstanding anything to the contrary contained herein, in the event of a successful closing of the Purchase Agreement on the Closing Date, then VDUL shall retain all property of VDUL, however Vanco shall be entitled to inspect and copy all records pertaining to VDUL necessary for Vanco to complete its tax returns, to monitor compliance of Manager with respect to its obligations hereunder and to enable Vanco to address any regulatory issues that may arise as a result of its ownership of VDUL through the Closing Date.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Amendment and Modification; Obligation to Renegotiate. This Agreement may be amended, modified or supplemented only by written agreement of Vanco and Manager. In the event that a governmental entity with jurisdiction over any or all of the Parties or over this Agreement determines that one or more provisions of this Agreement are unlawful, contrary to public policy, or otherwise unenforceable, the Parties will negotiate in good faith to amend the Agreement in order to comply with any such applicable regulatory requirements or policies while preserving the business objectives of all Parties.

Section 7.2 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, or condition shall not operate as a waiver of or estoppel with respect to any subsequent or other failure.

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Section 7.3 Notices. All notices under this Agreement shall be sufficiently given for all purposes if made in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, facsimile or other electronic transmission, to following addresses and numbers:

Notices to Seller shall be addressed to:
	Vanco plc (in administration) Holborn Gate 26 Southampton Buildings London WC2A 1PB Fax: +44-203-077-0599 E-Mail: simon.granger@fticonsulting.com Attn: The Administrators
Notices to Administrators shall be addressed to:
	The Administrators Holborn Gate 26 Southampton Buildings London WC2A 1PB Fax: +44-203-077-0599 E-Mail: simon.granger@fticonsulting.com Attn: Simon Granger
Each with a copy to:
	Bingham McCutchen LLP 2020 K Street, N.W., Suite 1100 Washington, DC 20006 Fax: (202) 373-6001 E-Mail: jean.kiddoo@bingham.com Attn: Jean L. Kiddoo, Esq.

or at such other address and to the attention to such other person as Seller and/or Administrators may designate by written notice to Manager.

Notices to Manager shall be addressed to:
	Capital Growth Acquisition, Inc. 500 W. Madison, Suite 2060 Chicago, Illinois 60661 Fax: 312-673-2422 E-Mail: pshutt@globalcapacity.com; Attn.: Patrick Shutt, CEO

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With a copy to:
	Shefsky & Froelich Ltd. 111 E. Wacker, Suite 2800 Chicago, Illinois 60601 Fax: 312-527-3194 E-Mail: mgoldsmith@shefskylaw.com; Attn.: Mitchell D. Goldsmith, Esq.

or at such other address and to the attention of such other person as Manager may designate by written notice to Seller and Administrators.

Section 7.4 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto, including by operation of law, without the prior written consent of the other party; provided however, that Vanco’s consent to a request by Manager to assign this Agreement to a special purpose acquisition company shall not be unreasonably withheld so long as Manager provides assurance that such special purpose vehicle is financially qualified to undertake Manager’s responsibilities under this Agreement, which assurance may include, at Vanco’s request, a guarantee by the parent company of the special purpose vehicle. Any assignment of this Agreement or any of the rights, interests or obligations hereunder in contravention of this Section 7.4 shall be null and void ab initio.

Section 7.5 No Third-Party Beneficiaries; Limitation of Liability. Nothing in this Agreement shall be construed as giving any person other than the Parties hereto any legal or equitable right, remedy or claim under or with respect to this Agreement.

Section 7.6 Invalidity. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy all other terms, the conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.

Section 7.7 Governing Law and Binding Effect. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware applicable to contracts made and to be performed entirely therein without giving effect to the conflicts of laws principles thereof.  This Agreement shall also be governed by and construed and enforced in accordance with applicable federal law.  This Agreement shall bind and inure to the benefit of each of the Parties and their permitted successors and assigns.

Section 7.8 Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original and all of which together shall constitute one and the same instrument; and, in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopy shall be as effective as delivery of a manually executed counterpart of this Agreement. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.

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Section 7.9 Entire Agreement; Amendments and Waivers. This Agreement, together with the Purchase Agreement (including the schedules and exhibits thereto) constitute the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations, and discussions, whether oral or written, of the Parties. No supplement, modification or waiver of this Agreement shall be binding unless the same is executed in writing by all parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), and no such waiver shall constitute a continuing waiver unless otherwise expressly provided.

Section 7.11 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. Whenever used herein the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall include all genders.

Section 7.12 Remedies. Vanco and Manager hereby acknowledge and agree that money damages may not be an adequate remedy for any breach or threatened breach of any of the provisions of this Agreement and that, in such event, Vanco or its successors or assigns, or Manager or its successors or assigns, as the case may be, may, in addition to any other rights and remedies existing in their favor, apply to the courts for specific performance, injunctive and/or other relief, without the necessity of posting bond, in order to enforce or prevent any violations of this Agreement.

Section 7.13 No Partnership or Joint Venture Created. Each Party shall be an independent contractor of the other Parties and nothing herein shall be construed as creating any other relationship among the Parties. The relationship established by this Agreement will not be construed to create a partnership, joint venture, or any other form of legal entity, nor establish any fiduciary relationship among the Parties or any affiliate of any Party. The provision of the services described in this Agreement does not establish any joint undertaking, joint venture, pooling arrangement, partnership, fiduciary relationship or formal business organization of any kind. Except as provided in this Agreement, no Party shall act as or hold itself out as agent for any other Party or create or attempt to create liabilities for any other Party.

Section 7.14 Confidentiality. Administrators, Vanco and Manager, and their respective officers, directors, partners and affiliates, agree to keep the terms and conditions of this Agreement and the transactions contemplated hereby confidential, and each agree not to disclose to any party not a party to this Agreement any of the terms hereof, except where such disclosure is: (i) to its professional advisers; (ii) current and prospective financing sources and their advisors; or (iii) is required by applicable law or the rules or standards of the United States Securities & Exchange Commission, the London Stock Exchange or the Listing Rules of the UK Listing Authority, or the rules and requirements of any other competent regulatory body, which determination may be made in the good faith opinion of counsel to the Party that is subject to the regulatory body in question. Manager expressly acknowledges that it has received, and will receive in the future, Confidential Materials (as hereinafter defined), and that disclosure of such Confidential Materials to parties not a party to this Agreement or otherwise permitted hereunder would cause irreparable harm to Vanco or Administrators. Except with the prior written consent of Vanco or Administrators or as required by law (including as set forth in clause (iii) immediately above), neither Manager nor its officers, directors, partners or affiliates, shall (i) disclose any Confidential Materials to any party not a party to this Agreement, or (ii) use any Confidential Materials for any purpose except in connection with their efforts on behalf of Vanco or Administrators. Manager and its officers, directors, partners and affiliates shall use their reasonable best efforts to preserve the confidentiality of all Confidential Materials. In the event that a party concludes that it is legally obligated to disclose any provision of this Agreement or any Confidential Materials, such party shall provide the other party with prompt written notice, and shall seek to limit the dissemination of such Confidential Materials subject to the requirement for dissemination as may be required in the good faith opinion of its counsel as it relates to disclosure to meet regulatory body approval. In the case of legal proceedings in which such disclosure is required, the parties shall cooperate to obtain an appropriate protective order limiting the disclosure of such material. The parties acknowledge that they may be required to disclose certain terms of this Agreement, or the entirety hereof, to the FCC or certain State Commissions in connection with applying for the Regulatory Approvals or in filings with the SEC. Notwithstanding the foregoing, Administrators may disclose details of this Agreement to their appointors, advisers and any liquidator of Vanco and also for the purpose of enforcing its terms, or if required to do so by any court. They may also include appropriate details in their administration records, accounts and returns.

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Notwithstanding the foregoing, Vanco or Administrators may disclose the amount of the Purchase Price to any third party if, in the sole and absolute discretion of Seller or Administrators, such disclosure is necessary to enable Vanco and/or Administrators to fulfill its/their obligations under the terms of any contract or arrangement with such third party.

7.15 Events of Default, Remedies. 

(a)  Manager shall be in default under this Agreement upon the occurrence of any of the following events (regardless whether any such event is voluntary or involuntary or occurs by operation of law or pursuant to any judgment, decree, order, rule or regulation of any court or administrative or governmental body):

i. the failure of Manager to perform its obligations hereunder or to observe in any material respect any covenant or agreement to be performed or observed by it hereunder and the continuation of such failure for a period of thirty days after Manager receives written notice thereof;

ii. Manager loses the requisite authority to perform its obligations hereunder if (1) the loss is not remedied within sixty (60) days of the loss thereof and (2) the loss has a material adverse effect upon Vanco, VDUL or Administrators; or

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iii. any of the representations or warranties of Manager contained herein shall cease to be true in any material respect.

(b) Upon the occurrence and during the continuance of any event of default and expiration of any related cure period, Vanco and/or the Administrators may, at their option, terminate this Agreement by written notice, which shall be effective immediately (subject to the obligation to provide prior notice of default if the default was the type that was susceptible of a cure). This remedy is not intended to be exclusive, and all remedies shall be cumulative and may be exercised concurrently with any other remedy available to a Party at law or in equity.

7.16 Indemnification; Limitation of Liability.

(a) Manager hereby agrees to defend, indemnify and hold harmless Vanco, Administrators and their respective officers, directors, managers, members, employees, agents, attorneys and affiliates, as well as the managers and officers of VDUL, from and against, and to promptly pay, all damages asserted against or incurred by reason of or resulting from any action, proceeding, claim or demand of any kind (actual or contingent) that may be brought or made against Vanco, the Administrators and/or the managers or officers of VDUL, and any loss, damage, award, cost, charge, penalty or expense incurred by Vanco, the Administrators and/or the managers or officers of VDUL as a result of Manager’s management of VDUL and the VDUL Systems hereunder. IN NO EVENT SHALL VANCO BE LIABLE, WHETHER IN CONTRACT, TORT (INCLUDING BUT NOT LIMITED TO LIABILITY FOR NEGLIGENCE), MISREPRESENTATION, WARRANTY OR ANY OTHER LEGAL OR EQUITABLE GROUNDS, FOR SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF THE PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT.

(b) For purposes of the indemnifications, defense, hold harmless and other limitations of liability set forth in this section, the officers, managers, members, employees, agents, attorneys and affiliates of VDUL as of the MSA Effective Date shall be considered third party beneficiaries of this Agreement.

7.17 Force Majeure. No Party shall be liable to another Party for any failure of performance under this Agreement due to causes beyond its control, including fire, flood or other catastrophes; any law, order, regulation, direction, action, or request of the United States Government, or of any other government, including state and local governments having or claiming jurisdiction over such party, or of any department, agency, commission, bureau, corporation or other instrumentality of any one or more of these federal, state or local governments, or of any civil or military authority; national emergencies; unavailability of materials or rights-of-way; insurrections; riots; wars; or strikes, lock-outs, significant work stoppages or other significant labor difficulties. In the event of any delay resulting from such causes, upon notice to the other parties promptly following the occurrence of the event giving rise to the delay, the time for performance hereunder shall be extended for a period of time reasonably necessary to overcome the effects of such delay.

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7.18 Disclaimers. THERE ARE NO AGREEMENTS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN AND ALL OTHER WARRANTIES ARE DISCLAIMED TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW.

7.19 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the greatest extent possible.

7.20 Further Assurances. Each Party agrees to execute all such further instruments and documents and to take all such further actions as any other Party may reasonably request in order to effectuate the terms and purposes of this Agreement; provided preparation of any such instruments and documents and any such further actions shall be at Manager’s expense.

7.21 Manager’s Risk. Failure to obtain any requisite license, consent, permit, registration, right or Regulatory Approval shall not prejudice this Agreement, the Purchase Agreement or, in particular, the Purchase Price payable under the Purchase Agreement. Manager shall solely and exclusively bear all risks associated with not obtaining any or all of the Regulatory Approvals.

7.22 Exclusion of Liability.

(a) All conditions, representations (including pre-contractual negligent and innocent misrepresentations) and warranties express or implied, and whether statutory or otherwise, relating to VDUL are expressly excluded. In particular, but without limitation, all representations and warranties as to title, quiet possession, enjoyment, quality, condition, state or description of VDUL or their fitness or suitability for any purpose whatsoever or whether the Regulatory Approvals or any of them will be forthcoming are expressly excluded.

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(b) Any claim of Manager, or of any person claiming through it, against Vanco or the Administrators shall take effect as an unsecured claim and not as an administration expense.

(c) The exclusions of liability in this Agreement shall:

(i) arise and continue notwithstanding the termination of Administrators' agency before or after the signing of this Agreement and shall operate as waivers of any claims in tort as well as under the law of contract;

(ii) be in addition to and not in substitution for and notwithstanding any right of indemnity or relief otherwise available;

(iii) continue after termination hereof.

(d) Nothing in this Agreement shall operate to restrict or affect in any way any right of Administrators to be indemnified, or to exercise a lien howsoever.

(e) In the absence of an express provision to the contrary, nothing in this Agreement shall require Vanco or Administrators to carry out or continue to carry out any arrangement or contract, whether single or of continuing effect, with third parties and whether in relation to VDUL or otherwise.

(f) Any claim against Vanco and/or against Administrators (or their firm, partners, employees, agents, advisers or representatives) related to this Agreement shall in any event and in addition to the exclusions of liability contained in this Agreement, be irrevocably waived by Manager unless made in writing by notice to Administrators within 30 days after the Closing Date.

(g) The exclusions and limitations contained in this Agreement shall not apply in the case of any fraudulent misrepresentation made by Seller or Administrators or their respective agents or insofar as any action against any of them is based upon the fraud of Seller or Administrators or their respective agents.

(h) Administrators are party to this Agreement solely to obtain the benefit of the exclusions and limitations on liability and undertakings in their favor.

7.23 Exclusion of Personal Liability.

(a) Administrators are agents of Seller and have been acting in that capacity in the negotiation, preparation and implementation of this Agreement.

(b) Neither Administrators nor their firm, staff, employees, advisers and agents shall incur personal liability under this Agreement or any other deed, instrument or document entered into pursuant to it and any liability to which Administrators or their staff, employees, advisers and agents would otherwise be subject (whether in contract, tort or otherwise) is expressly excluded.

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(c) Any right under this Agreement which is for the benefit of Administrators (and in particular, without prejudice to the generality of the foregoing, any right to be indemnified by Manager and the rights granted hereunder and all rights to receive any payment from Manager) shall also be for the benefit of, and shall be exercisable by, any subsequent administrator, liquidator or other insolvency practitioner (a "Subsequent Appointee") appointed in respect of Seller and so that, as regards such Subsequent Appointee, the relevant clause shall apply mutatis mutandis so that references to Administrators shall be treated as references to such Subsequent Appointee.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written.

“Vanco”
Vanco plc (in administration) represented by one of its Administrators (acting as agent for and on behalf of Vanco without personal liability)
By:	____________________________________
Name:	Simon Granger
Title:	Administrator
“Administrators”
On behalf of the Administrators (without personal liability)
By:	____________________________________
Name:	Simon Granger
Title:	Administrator
“Manager”
Capital Growth Acquisition, Inc.
By:	____________________________________
Name:	Patrick C. Shutt
Title:	CEO

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EX-10.4 5 v132473_ex10-4.htm

Exhibit 10.4

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of Vanco plc (in administration) (together with its permitted assigns, “Vanco”).

WITNESSETH:

WHEREAS, pursuant to that certain Interest and Loan Purchase Agreement, dated as of the date hereof, by and between Capital Growth Systems, Inc., a Florida corporation (the “Company”), Capital Growth Acquisition Inc., a wholly owned subsidiary of the Company (“CGAI”), Vanco and Vanco Direct USA, LLC, a wholly owned subsidiary of Vanco (“VDUL”) (the “Purchase Agreement”), in partial consideration for all of the outstanding membership interests of VDUL, the Company has agreed to sell and issue to Vanco the Company’s Variable Rate Convertible Debenture, due seven years following its issuance (the “Debenture”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debenture; and

NOW, THEREFORE, in consideration of the premises and to induce Vanco to enter into the Purchase Agreement and purchase the Debenture and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with Vanco as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Debenture and used herein shall have the meanings given to them in the Debenture. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

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

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

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

“Obligations” means, in addition to all other costs and expenses of collection incurred by Vanco in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to Vanco, including, without limitation, all obligations under this Guarantee, the Debenture and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Vanco as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debenture and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debenture and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

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

“Subsidiary” means any direct or indirect subsidiary of the Company.

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to Vanco and its successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)The maximum liability of each Guarantor hereunder shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of Vanco hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by Vanco from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making Vanco whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Debenture.

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(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to Vanco and each Guarantor shall remain liable to Vanco for the full amount guaranteed by such Guarantor hereunder.

(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by Vanco, no Guarantor shall be entitled to be subrogated to any of the rights of Vanco against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by Vanco for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to Vanco by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for Vanco, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to Vanco in the exact form received by such Guarantor (duly indorsed by such Guarantor to Vanco, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Vanco may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by Vanco may be rescinded by Vanco and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by Vanco, and the Purchase Agreement and the Debenture and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as Vanco may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by Vanco for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Vanco shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by Vanco upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and Vanco, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or the Debenture, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by Vanco, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Vanco) which may at any time be available to or be asserted by the Company or any other Person against Vanco, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, Vanco may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by Vanco to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Vanco against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by Vanco upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to Vanco without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Vanco as of the date hereof:

(a) Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and Vanco shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Debenture prior to rendering their advice.

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4.Covenants. Each Guarantor covenants and agrees with Vanco that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debenture) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by Vanco.

(b)Notices. All notices, requests and demands to or upon Vanco or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. Vanco shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Debenture or Event of Default. No failure to exercise, nor any delay in exercising, on the part of Vanco, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Vanco of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Vanco would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse Vanco for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee, including, without limitation, the reasonable fees and disbursements of counsel to Vanco.

(ii)Each Guarantor agrees to pay, and to save Vanco harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save Vanco harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Debenture.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Debenture.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of Vanco and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of Vanco.

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(f)Set-Off. Each Guarantor hereby irrevocably authorizes Vanco at any time and from time to time while an Event of Default under the Debenture shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Vanco to or for the credit or the account of such Guarantor, or any part thereof in such amounts as Vanco may elect, against and on account of the obligations and liabilities of such Guarantor to Vanco hereunder and claims of every nature and description of Vanco against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, the Debenture or otherwise, as Vanco may elect, whether or not Vanco have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. Vanco shall notify such Guarantor promptly of any such set-off and the application made by Vanco of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Vanco under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which Vanco may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee represents the agreement of the Guarantors and Vanco with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by Vanco relative to subject matter hereof and thereof not expressly set forth or referred to herein.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

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(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)Vanco has no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee, and the relationship between the Guarantors, on the one hand, and Vanco, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and Vanco.

(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Debenture.

(o)[Reserved].

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, VANCO, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

[ADD NEW SUB]

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of Vanco pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and Vanco have entered into a Interest and Loan Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”), and in connection therewith, the Company issued to Vanco a variable rate convertible debenture having a principal amount of $3 million (the “Debenture”);

WHEREAS, in connection with the Debenture, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of Vanco;

WHEREAS, the Guarantee requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.5 6 v132473_ex10-5.htm

Exhibit 10.5

CONSENT, WAIVER, AMENDMENT AND EXCHANGE AGREEMENT

THIS CONSENT, WAIVER, AMENDMENT AND EXCHANGE AGREEMENT (the“Agreement”), dated as of November ___, 2008, is entered into by and among Capital Growth Systems, Inc., a Florida corporation (the “Company”), and the persons identified as “Holders” on the signature pages hereto (the “Holders”). Defined terms not otherwise defined herein shall have the meanings set forth in the March Purchase Agreement (as defined below).

WHEREAS, pursuant to aSecurities Purchase Agreement, dated March 11, 2008 (the “March Purchase Agreement”), among the Company and the Holders, the Holders purchased from the Company an aggregate of $19,000,000 in principal amount of Variable Rate Secured Convertible Debentures of the Company (the “March Debentures”) and were issued warrants exercisable for shares of Common Stock (the “March Warrants”);

WHEREAS, pursuant to a Securities Purchase Agreement of even date herewith in the form attached as Exhibit A hereto (the “New Purchase Agreement”) among the Company and the purchasers identified on the signature pages thereto (collectively, the “New Investors”), the New Investors will be purchasing $14,891,250 in aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, due in 364 days and subject to automatic extension upon the final closing of the Company’s acquisition of beneficial ownership of Vanco Direct USA, LLC (“VDUL,” with the final closing being the “Final Closing”) to seven years from their issuance date (the “New Debentures” together with warrants to purchase shares of Common Stock (the offer and sale of such New Debentures and warrants pursuant to the New Purchase Agreement are hereafter referred to as the “New Financing”); and

WHEREAS, pursuant to a Loan and Security Agreement by and among the Company and its Subsidiaries and ACF CGS, L.L.C. as Agent for itself and/or other lenders (the “Archer Agreement”) of even date herewith in the form attached as Exhibit B hereto among the Company and the investor identified on the signature pages thereto (“Archer”), Archer will be lending the Company $8,500,000 pursuant to a secured promissory note due 364 days from issuance but subject to automatic extension as of the Final Closing to 24 months following its issuance (“Archer Note”) (the issuance of the Archer Note pursuant to the Archer Agreement is hereafter referred to as the “ Archer Financing”);

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Holder hereby agrees as follows:

1.Waivers. Subject to the terms and conditions hereunder, each Holder hereby waives compliance with the Company’s obligation to provide, and the Holder’s right to receive, notice of the New Financing in accordance with the time frames set forth in Section 4.12(b) of the March Purchase Agreement (it being understood that the waiver in this sentence shall in no way limit a Holder’s right to participate in such New Financing as set forth in Section 4.12 of the March Purchase Agreement), and each Holder hereby waives its right under Section 4.12 of the March Purchase Agreement to participate in the Archer Financing. In addition, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Sections 4.13(a) of the March Purchase Agreement and Sections 7(a) and 7(b) of the March Debentures with respect to the New Financing and agrees that such restrictions shall not apply to the issuance of the New Debentures pursuant to the New Financing. Further, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Sections 7(a) and 7(b) of the March Debentures with respect to the Archer Financing and agrees that such restrictions shall not apply to the issuance of the Archer Note pursuant to the Archer Financing. In addition, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Section 7(a) of the March Debentures with respect to the issuance of the Administrator Debenture (as defined in the New Purchase Agreement). Lastly, subject to the terms hereunder, each Holder hereby waives the restrictions set forth in Section 4.13(a) of the March Purchase Agreement with respect to (i) the issuance of 2,000,000 shares of Common Stock and warrants to purchase 15,000,000 shares of Common Stock to Salzwedel Financial Communications, Inc., (ii) warrants to purchase 1,500,000 shares of Common Stock to Aequitas Capital Management, Inc. and (iii) warrants to the placement agent for the New Financing to purchase that number of shares that would be purchasable with 7% of the cash investments (or cash equivalent value) from the New Financing, each as descried on the Disclosure Schedules to the New Purchase Agreement.

2. Amendments and other Agreements.

(a) Amended and Restated March Debentures.

(i)The Company hereby agrees to issue each Holder other than Hudson Bay Overseas Fund, Ltd. (“HBOF”) and Hudson Bay Fund, L.P. (“HBF”, and together with HBOF, collectively, “Hudson Bay”), in exchange for such purchaser’s March Debenture, an amended and restated debenture, in the form of Exhibit C attached hereto (the “Amended and Restated March Debenture(s)”) with a principal amount equal to the principal amount of such Holder’s current March Debenture multiplied by 1.77 minus any interest paid thereon through the date hereof. The individual principal amounts of the Amended and Restated March Debentures are as set forth on Schedule A attached hereto. Other than as amended thereunder, the rights and obligations of the Holders and of the Company with respect to the Amended and Restated March Debentures shall be identical in all respects to the rights and obligations of the Holders and of the Company with respect to the March Debentures and the Underlying Shares issued and issuable pursuant to the Purchase Agreement, subject to the understanding that the Company shall have the right to effect the Amendment within 75 days following the date of New Purchase Agreement, to the extent that it presently has not reserved sufficient authorized Common Stock underlying the Amended and Restated March Debentures due to the reset in the conversion price for the Amended and Restated March Debentures to $0.24 per share. For clarity, the March Purchase Agreement and all Transaction Documents thereunder are hereby amended so that the term “Debentures” includes the Amended and Restated March Debentures and the term “Underlying Shares” includes the shares of Common Stock issuable upon conversion and redemption thereof, and the term “Transaction Documents” shall be amended to include this Agreement. The Amended and Restated March Debentures are being issued in substitution for and not in satisfaction of the March Debentures, provided, however, the Holder acknowledges and agrees that upon the issuance and acceptance of the certificate evidencing its Amended and Restated March Debenture issued pursuant to this Section, the original certificate evidencing its March Debenture will be deemed cancelled.

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(ii)With respect to Hudson Bay, the Company agrees to issue, and Hudson Bay agrees to accept, in exchange for Hudson Bays’ respective Debentures and in full satisfaction of any legal fee reimbursement owing to Hudson Bay and all liquidated damages due and which may become due under the Registration Rights Agreement, the amended and restated debentures in the form attached as Exhibit C-2 attached hereto (the “Hudson Bay Amended and Restated March Debentures”), having principal amounts set forth on Schedule A attached hereto, which shall also be deemed to constitute Amended and Restated March Debentures for all purposes hereof, but shall have the differing economic rights as set forth below in Section 2(a)(iii). For clarity, the term “Debentures” in all of the Transaction Documents shall mean both the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures. All of the Holders hereby consent to the amendments to the Debentures set forth on the Amended and Restated Debentures attached hereto as Exhibits C-1 and C-2, respectively. The Hudson Bay Amended and Restated Debentures are being issued in substitution for and not in satisfaction of Hudson Bay’s March Debentures, provided, however, Hudson Bay acknowledges and agrees that upon the issuance and acceptance of the certificate evidencing the Hudson Bay Amended and Restated Debentures issued pursuant to this Section, the original certificate evidencing its March Debenture will be deemed cancelled.

(iii) Interest. All interest with respect to the Hudson Bay Amended and Restated March Debentures (including any future make whole payments that may be due thereunder) shall be satisfied in full with the payment of a cash sum equal to the sum of $915,202.59 (allocated pro rata among HBOF and HBO based upon the respective outstanding principal amounts of their respective March Debentures immediately preceding the date hereof), which sum reflects the remaining unpaid interest and make whole amount of the March Debentures, after giving effect to all prior payments of interest or make whole payments by the Company, and all liquidated damages due and which may become due under the Registration Rights Agreement (including for failure of the Company to register the shares of Common Stock underlying the Hudson Bay Amended and Restated March Debentures and the warrants issued to them under the March Purchase Agreement, but excluding any liquidated damages which may become due pursuant to Section 4 hereunder) shall be satisfied with the issuance of the Hudson Bay Amended and Restated March Debentures.

(b)Amendments to the March Purchase Agreement.

(i)The term “Exempt Issuance” in the March Purchase Agreement is hereby amended to add the following: shares of Common Stock issued and issuable with respect to the redemption of the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures and the New Debentures or payment of any liquidated damages with respect to the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures and the New Debentures, the New Purchase Agreement and the warrants issued pursuant to the New Purchase Agreement in each case pursuant to the terms thereof as in effect on the date of the New Purchase Agreement.

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(ii)The following is added as new Section 4.18 of the March Purchase Agreement:

“Notwithstanding anything to the contrary contained herein or in any Transaction Document, if at any time prior to the Senior Creditor Repayment (as defined in that certain subordination agreement among the Company, its Subsidiaries, the Purchasers, and ACF CGS, LLC and the other investors signatory thereto) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to any Transaction Document, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash under such Transaction Documents shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages under the Transaction Documents shall be equal to the least of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such liquidated damages become due, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(c)Consent to Certain Prior Acts. To the extent not previously executed and delivered, each Holder agrees to execute the waivers attached hereto as Exhibits D-1 and D-2with respect to (i) $500,000 bridge loan transaction with Aequitas Catalyst Fund, LLC and (ii) the restatement of the Company’s financial statements as evidenced by its 2008 Form 8-K filing made prior to the date hereof.

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

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

3.Representations and Warranties. The Company hereby makes to the Holders the following representations and warranties:

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

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

(c)Issuance of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures. The Amended and Restated Debentures March Debentures and the Hudson Bay Amended and Restated March Debentures are duly authorized and, upon the execution of this Agreement by the Holders will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, as applicable, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares sufficient for the conversion in full of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures prior to giving effect to the reset provision contained therein, and the Company covenants to authorize a sufficient number of its shares of Common Stock by way of amendment to its articles of incorporation no later than 75 days following the date hereof (subject to extension as may be agreed to by the Holders of a majority of the outstanding principal amount of the Amended and Restated March Debentures).

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(d)Equal Consideration. No consideration has been offered or paid to any person to amend or consent to a waiver, modification, forbearance or otherwise of any provision of any of the Transaction Documents.

(e)Survival and Bring Down. All of the Company’s warranties and representations contained in this Agreement shall survive the execution, delivery and acceptance of this Agreement by the parties hereto. The Company expressly reaffirms that, except as set forth in the Disclosure Schedules to the New Purchase Agreement, each of the representations and warranties set forth in the March Purchase Agreement, continues to be true, accurate and complete, and the Company hereby remake and incorporate herein by reference each such representation and warranty as though made on the date of this Agreement.

(f)Holding Period for Amended and Restated Debentures. Pursuant to Rule 144, the holding period of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures (and Underlying Shares issuable upon conversion and redemption thereof) shall tack back to the original issue date of the March Debentures. The Company agrees not to take a position contrary to this Section 3(f). The Company agrees to take all actions, including, without limitation, the issuance by its legal counsel of any necessary legal opinions (which may be satisfied pursuant to Section 5), necessary to issue to the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures (and Underlying Shares issuable upon conversion and redemption thereof) without restriction and not containing any restrictive legend without the need for any action by the Holder.

(g)No Novation. The Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures are being issued in substitution for and not in satisfaction of the March Debentures. The Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures shall not constitute a novation or satisfaction and accord of any of the March Debentures. The Company hereby acknowledges and agrees that the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures shall amend, restate, modify, extend, renew and continue the terms and provisions contained in the March Debentures and shall not extinguish or release the Company or any of its Subsidiaries under any Transaction Document (as defined in the March Purchase Agreement) or otherwise constitute a novation of its obligations thereunder.

(h)No Event of Default. The Company represents and warrants to each Holder that after giving effect to the terms of the waivers contemplated in this Agreement, no Event of Default (as defined in the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, as applicable) shall have occurred and be continuing as of the date hereof.

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4.Public Information Failure Payments. As a result of the changes made to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”) which are effective February 15, 2008, the Company's obligations, pursuant to the Registration Rights Agreement, by and among the Company and each of the undersigned (the “Registration Rights Agreement”), to register the shares of Common Stock issuable upon conversion and/or exercise of the (i) Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, including shares of Common Stock issued in lieu of cash redemptions thereunder, and (ii) the March Warrants (collectively, the “144 Eligible Securities”), are hereby suspended, so long as (a) the Company is in compliance with the current public information requirement under Rule 144 and (b) the Holder may sell the 144 Eligible Securities without any restriction or limitation under Rule 144 as of that date. In connection with the foregoing, the Company hereby covenants and agrees that at any time during the period commencing on the date hereof and ending at such time that all of the Underlying Shares can be sold without the requirement that adequate public information with respect to the Company be available as set forth in Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c)(1) and such failure exceeds the extension period afforded to the Company under Rule 12b-25 of the Exchange Act to file a report that is not filed within the time period prescribed for such report, provided the Company timely files a Form 12b-25 with the Commission (any such failure being referred to as a “Public Information Failure” and the Business Day immediately following the extension period afforded by Rule 12b-25 being referred to as the “Public Information Failure Date”), then, as partial relief for the damages to the Holder by reason of any such delay in or reduction of its ability to sell the Underlying Shares (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each such holder an amount in cash equal to two percent (2.0%) of the aggregate purchase price paid by such holder under each of the Purchase Agreement for any Securities then held by such holder on the Public Information Failure Date and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (y) the date such Public Information Failure is cured and (z) such date that the public information requirement set forth in Rule 144(c)(1) is no longer required pursuant to Rule 144. The foregoing payments to which a holder shall be entitled are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Public Information Failure Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full.

5.Legal Opinion. The Company hereby agrees to cause its legal counsel to issue a legal opinion to the undersigned Holders and the Company’s Transfer Agent regarding this Agreement and the transactions contemplated hereby, in form and substance reasonably acceptable to the Purchasers, including an opinion that the 144 Eligible Securities may be sold pursuant to Rule 144 without volume restrictions or manner of sale limitations as of September 11, 2008 and that certificates representing the 144 Eligible Securities issuable upon conversion of the Amended and Restated March Debentures or a “cashless exercise” of the Warrants may be issued without a restrictive legend as required pursuant to Section 4.1 of the March Purchase Agreement.

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6.Withdrawal of Registration Statement. Subject to the terms and conditions set forth herein, the Holders hereby agree that the Company can withdraw the registration statement filed pursuant to the Registration Rights Agreement, and agree that the Company shall not be required to file or maintain the effectiveness with respect to any Underlying Shares that are eligible for resale without volume or manner-of-sale restrictions so long as the Company is in compliance with the current public information requirements pursuant to Rule 144. As of the date hereof the Company satisfies the current public information requirement under Rule 144(c)(1).

7.Confirmation of Dilution Adjustment. In connection with the issuance of the securities in the New Financing, the Conversion Price of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures has been reduced to $0.24, subject to further adjustment therein, and the exercise price of the March Warrants has been reduced to $0.24, and the number of shares underlying the March Warrants has been increased in the individual amounts set forth on Schedule B attached hereto, each subject to further adjustment pursuant to the March Warrants.

8.Conversion Between Signing and Closing. In the event a Holder wishes to convert its March Debentures between the date hereof and the Closing Date (as defined in Section 9(a)), the Company shall convert the March Debentures pursuant to its existing terms of the March Debentures without giving effect to the terms of this Agreement, such that the aggregate principal amount subject to the exchange set forth in Sections 2(a)(i) and 2(a)(ii), as applicable, shall be reduced by the amount of such conversion.

9.Miscellaneous.

(a)The foregoing waivers shall not be effective unless and until: (i) all Holders shall have agreed to the terms and conditions hereunder, (ii) the New Investors and all of the Holders execute and deliver an Intercreditor Agreement in the Form of Exhibit C attached hereto, (iii) the Holders, the New Investors and Archer execute and deliver an Intercreditor Agreement in the Form of Exhibit D attached hereto and (iv) the Administrator (as defined in the New Purchase Agreement), the Company and its subsidiaries executed and deliver a subordination and intercreditor agreement in the Form of Exhibit E attached hereto. The waivers, agreements and obligations of the Holders set forth herein shall be null and void in the event the New Financing and the Archer Financing are not consummated on or before November 21, 2008 and the Company files a Current Report on Form 8-K with respect thereto by November 24, 2008. In addition, the respective obligations, amendments, agreements and waivers of the Holders hereunder are subject to the following conditions being met: (a) the accuracy in all material respects of the representations and warranties of the Company contained herein (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) and (b) the performance by the Company of all if its obligations, covenants and agreements required to be performed hereunder. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth herein. The Company shall, on or before 8:30 AM (NY time) on the 1^st Trading Day following the date hereof, issue a Current Report on Form 8-K, reasonably acceptable to the Holders, disclosing the material terms of the transactions contemplated hereby, and shall attach this Agreement and all other related agreements thereto, including, without limitation, the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures, the Intercreditor Agreement, all material agreements under the Archer Financing and all “Transaction Documents” (as defined in the New Purchase Agreement (the “8-K Filing”). From and after the filing of the 8-K Filing with the Commission, the Holder shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall consult with the Holders in issuing any other press releases with respect to the transactions contemplated hereby.

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(b)This Agreement may be executed in two or more counterparts and by facsimile signature or otherwise, and each of such counterparts shall be deemed an original and all of such counterparts together shall constitute one and the same agreement.

(c)The Company has elected to provide all Holders with the same terms and form of agreement for the convenience of the Company and not because it was required or requested to do so by the Holders. The obligations of each Holder under this Agreement, and any Transaction Document are several and not joint with the obligations of any other Holder, and no Holder shall be responsible in any way for the performance or non-performance of the obligations of any other Holder under this Agreement or any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Holder pursuant thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or the Transaction Documents. Each Holder shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. Each Holder has been represented by its own separate legal counsel in their review and negotiation of this Agreement and the Transaction Documents.

(d)Except as set forth in the Transaction Documents (as defined in the New Purchase Agreement) and except for $43,325 that will be added to the principal amount of the Hudson Bay Amended and Restated March Debentures for Hudson Bay’s legal fees and expenses, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures.

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(e)If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

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IN WITNESS WHEREOF, this Agreement is executed as of the date first set forth above.

CAPITAL GROWTH SYSTEMS, INC.

By:_____________________________________

Name:

Title:

[signature page(s) of Holders to follow]

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COUNTERPART SIGNATURE PAGE

OF HOLDER TO

AMENDMENT AGREEMENT

AMONG CAPITAL GROWTH SYSTEMS, INC. AND

THE HOLDERS THEREUNDER

Name of Holder:___________________________________

By:______________________________________________

Name:____________________________________________

Title:_____________________________________________

EX-10.6 7 v132473_ex10-6.htm

Exhibit 10.6

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

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

Original Issue Date: March 11, 2008

$_______________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED

CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due November ___, 2009 (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture

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

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

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

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Purchasers” , and such agreement,the “Archer Loan Agreement”).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

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

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

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

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

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

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

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

______________________________

¹ A-B/21, where A = the new face amount of this Debenture and B = the initial Subscription Amount

² A-B

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

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

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

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

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

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

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

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

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

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

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

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

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

Section 4.Conversion.

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

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

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

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d)   Mechanics of Conversion.

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

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

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

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

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

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved _________³ shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

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

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

Section 5.Certain Adjustments.

_________________________

³ Original Subscription Amount under March Purchase Agreement divided by $0.50.

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

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

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

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

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

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

g)Notice to the Holder.

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

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

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h)Other Adjustments. On the 210^th calendar day following the Original Issue Date (the “Trigger Date”), the Conversion Price shall be reduced to equal the lesser of (i) the then Conversion Price and (ii) a price equal to 90% of the average of each of the VWAPs for the 5 Trading Days immediately prior to the Trigger Date. For clarity, the Conversion Price can only be adjusted downward pursuant to this Section 5(h).

Section 6.Quarterly Redemption.

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

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

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

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

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

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

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

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

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

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

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

Section 8.Events of Default.

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

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

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

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

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

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

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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

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

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

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

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

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

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Section 9.Miscellaneous.

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

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

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

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

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

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

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

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

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

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

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

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

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[SIGNATURE PAGES FOLLOW]

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

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or

Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:_____________

Account No:___________

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.7 8 v132473_ex10-7.htm

Exhibit 10.7

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

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

Original Issue Date: March 11, 2008

$__________________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE AMENDING AND RESTATING THE DEBENTURE ORIGINALLY ISSUED 3/11/08 is one of a series of duly authorized and validly issued Amended and Restated Original Issue Discount Secured Convertible Debentures Amending and Restating Debenture Originally Issued 3/11/08 of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Amended and Restated Original Issue Discount Secured Convertible Debenture Amending And Restating Debenture Originally Issued 3/11/08, due on the day immediately preceding the first anniversary of this Debenture, as that term is defined herein (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will terminate on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture.

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

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

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

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the senior lenders under the Archer Loan Agreement (the “Archer Purchasers”).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds 300,000 shares per Trading Day (subject to forward and reverse stock splits, stock dividends, stock combinations, recapitalizations and other similar transactions of the Common Stock that occur after the Original Issue Date).

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

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

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

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

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

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

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

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

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

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

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

Section 4.Conversion.

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

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

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

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d)Mechanics of Conversion.

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

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the six month anniversary of the Original Issue Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(d) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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

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

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

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved 3,049,358 shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

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

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

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Section 5.Certain Adjustments.

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

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

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

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

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

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

g)Notice to the Holder.

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

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

Section 6.Quarterly Redemption.

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

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

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

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

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

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

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

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

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

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

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

Section 8.Events of Default.

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

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

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

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iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

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

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

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, provided however that the failure of Vanco Direct USA, LLC (“VDUL”) to obtain consent to either the change in control of VDUL by the Company or of any sublease of any of its space from VDUL’s sublessor, or the sublessor or lessor senior to its sublessor or lessor senior to it sublessor with respect to space in ins lease of 200 West Wacker, Chicago, Illinois, shall not be deeded to constitute a breach of the Purchase Agreement;

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

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

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

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

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

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

Section 9.Miscellaneous.

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

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

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

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

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

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

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

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

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

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

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

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

[SIGNATURE PAGES FOLLOW]

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

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of Shares of Common Stock to be Issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of

Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                       

Account No:                   

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.8 9 v132473_ex10-8.htm

Exhibit 10.8

TERM LOAN AND SECURITY AGREEMENT

Dated as of November ____, 2008

Among

CAPITAL GROWTH SYSTEMS, INC.,

GLOBAL CAPACITY GROUP, INC.,

CENTREPATH, INC.,

20/20 TECHNOLOGIES, INC.,

20/20 TECHNOLOGIES I, LLC,

NEXVU TECHNOLOGIES, LLC,

FNS 2007, INC.,

MAGENTA NETLOGIC LIMITED,

CAPITAL GROWTH ACQUISITION, INC., and

VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC

(as Borrowers),

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

(as Lenders),

and

ACF CGS, L.L.C.

(as Agent)

TABLE OF CONTENTS

		Page
1.	Definitions	2
2.	Borrowing	14
3.	Interest and Fees	20
4.	Representations and Warranties of Borrowers	21
5.	Collateral	25
6.	Financial Covenants	26
7.	Collateral Covenants	26
8.	Negative Covenants	30
9.	Reporting and Information	32
10.	Inspection Rights; Expenses; Etc.	33
11.	Rights of Setoff, Application of Payments, Etc.	34
12.	Attorney-in-Fact	34
13.	Defaults and Remedies	35
14.	Indemnification	38
14.	Indemnification	43
15.	General Provisions	44

Attachments:

Addendum

Exhibit A - Lender and Lenders’ Commitment

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Term Note

Exhibit D - Employment Agreements

TERM LOAN AND SECURITY AGREEMENT

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the ___ day of September, 2008 among CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a Global Capacity Direct, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein individually as a “Borrower” and collectively as the “Borrowers”), the lenders from time to time party hereto (each a “Lender” and collectively, the “Lenders”) and ACF CGS, L.L.C., a Delaware limited liability company, as agent for the Lenders (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a secured term loan and Lenders are willing to provide a secured term loan to Borrowers on the terms set forth herein, which secured term loan Borrowers will use for the purposes permitted hereunder; and

WHEREAS, Borrowers’ business is a mutual and collective enterprise and Borrowers believe that the consolidation of the secured term loan and other financial accommodations under this Agreement will enhance the aggregate borrowing powers of Borrowers and facilitate the administration of their loan relationship with Agent and each of the Lenders, all to the mutual advantage of Borrowers; and

WHEREAS, each Borrower acknowledges that it will receive substantial direct and indirect benefits by reason of the making of the secured term loan and other financial accommodations to Borrowers as provided in this Agreement, by virtue of Borrowers’ various inter-relationships as joint guarantors or joint obligors and the beneficiaries thereof, as lessors and lessees, as suppliers and customers, and as joint venturers; and

WHEREAS, Lender’s willingness to extend financial accommodations to Borrowers, and to administer Borrowers’ collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers’ request and in furtherance of Borrowers’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions. For purposes of this Agreement:

“20/20 Inc. Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 Inc. in favor of the Agent, on behalf if itself and the Lenders, with respect to its Stock in 20/20 LLC.

“20/20 LLC Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 LLC in favor of the Agent, on behalf of itself and the Lenders, with respect to its Stock in Magenta.

“Accounts” means all presently existing or hereafter arising accounts receivable due each Borrower (including medical and health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to each Borrower, whether or not arising from the sale or lease of goods or the rendition of services by such Borrower (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of each Borrower’s rights in, to and under all purchase orders now or hereafter received by such Borrower for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to each Borrower under all contracts for the sale or lease of goods or the rendition of services by such Borrower (whether or not yet earned) (including the right to receive the proceeds of said purchase orders and contracts), all amounts payable to each Borrower under any insurance policy, all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by each Borrower that correspond to any of the foregoing.

“Account Control Agreements” shall mean collectively, the Private Bank Account Control Agreement and the HSBC Account Control Agreement.

“Acquisition” means the acquisition by CG Acquisition of 100% of the membership interests of Vanco pursuant to the Acquisition Documents.

“Acquisition Documents” means the Interest Purchase Agreement and the Management Services Agreement, together with all other agreements, instruments, opinions of counsel and other documents executed and/or delivered in connection with the Acquisition.

“Addendum” means the Addendum to Term Loan and Security Agreement attached hereto, as the same may be amended and in effect from time to time.

“Adjusted Working Capital” means the remainder of (a) the consolidated current assets of the Borrowers minus the amount of cash and cash equivalents included in such consolidated current assets, minus (b) the consolidated current liabilities of the Borrowers minus the amount of consolidated short-term Indebtedness (including current maturities of long-term Indebtedness) of the Borrowers included in such consolidated current liabilities.

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“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agent” has the meaning set forth in the preamble hereto.

“Agent Advances” has the meaning specified therefor in Section 14(h).

“Agreement Date” means the date as of which this Agreement is dated.

“Annualized EBITDA” shall mean the trailing period EBITDA annualized to twelve (12) months.

“Applicable Authorization States” means the states of Arizona, Delaware, Georgia, Indiana, Pennsylvania, Tennessee and West Virginia.

“Applicable Margin” means the rate of interest to be paid on the unpaid principal amount of the Term Note from and after the Agreement Date. For the period from and after the Agreement Date, the Applicable Margin shall be 14% per annum payable monthly, of which 9% shall be paid in cash, and 5% shall be capitalized, compounded and added to the unpaid principal amount of the Term Note monthly (whereupon from and after such date such additional amounts shall also accrue interest) (such interest, “PIK Interest”).

“Applicable Rate” means a rate equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in form approved by the Agent.

“Borrowers’ Agent” means Parent, in its capacity as agent for itself and the other Borrowers pursuant to Section 2(j).

“Borrower Asset Sales” has the meaning set forth in Section 2(c)(i).

“BT Receivable” means those certain receivables related to Magenta invoices OPT-20080807-1 and OPT-20080331-2 as defined in the BT Receivables Agreement.

“BT Receivables Agreement” means that certain Second Amendment to British Telecommunications and Magenta netLogic Ltd. Camera Agreement 10693 dated September 30, 2008.

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“BT Receivable Payment” means any cash received by a Borrower with respect to the BT Receivable.

“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent is otherwise closed for transacting business with the public.

“Capitalized Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligations” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Balance” means, at any time, unrestricted cash and cash equivalents of Borrowers, on deposit with (i) the Depository Bank and subject to the Private Bank Account Control Agreement, and (ii) HSBC USA, National Association and subject to the HSBC Account Control Agreement.

“CG Acquisition Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by CG Acquisition in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Vanco.

“Collateral” has the meaning set forth in Section 5(a).

“Commitment” means with respect to each Lender, the commitment of such Lender to make the Term Loan to the Borrowers in the amount set forth in Exhibit A hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement.

“Credit Party” means each Borrower, any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, or any other Person which has granted a Lien on any assets of such Person as collateral for any of the Obligations, and “Credit Parties” means all of the foregoing Persons collectively.

“Customer” means any customer of any Borrower.

“Debenture Documents” means the Debenture Purchase Agreements and all debentures, security agreements, guarantees and other agreements executed and/or delivered in connection with the Debenture Indebtedness.

“Debenture Indebtedness” means Indebtedness of Parent (which is guaranteed by certain other Borrowers) evidenced by the debentures issued pursuant to the Debenture Purchase Agreements, as described in Item 9 of the Addendum.

“Debenture Intercreditor Agreement” means that certain Debt Subordination and Intercreditor Agreement dated on or about the Agreement Date among Agent, for the benefit of the Agent and the Lenders, and the Debenture Purchasers.

4

“Debenture Purchasers” means the Purchasers under and as defined in the Debenture Purchase Agreements and any successor holders of Debenture Indebtedness permitted under the Debenture Intercreditor Agreement.

“Debenture Purchase Agreements” mean each of: (a) that certain Securities Purchase Agreement dated as of March 11, 2008, among Parent and the Debenture Purchasers party thereto, as modified and amended pursuant to that certain Consent, Waiver, Amendment and Exchange Agreement dated on or about the Agreement Date, pursuant to which Parent agrees to issue debentures to such Debenture Purchasers to cover the outstanding interest payable for the remainder of the terms of their original debentures and to cover the remaining penalties associated with failure to meet the maximum negotiated obligations pursuant to the Registration Rights Agreement between Parent and such Debenture Purchasers; (b) that certain Note Purchase Agreement dated as of September 25, 2008, between Parent and Aequitas Catalyst Fund, LLC –Series B; (c) that certain Securities Purchase Agreement dated on or about the Agreement Date among Parent and the Debenture Purchasers party thereto; and (d) the Interest Purchase Agreement to the extent the same provides, for the issuance of a debenture to the Administrator in the original principal amount of $4,000,000.

“Depository Bank” shall mean The Private Bank and Trust Company, its successors and assigns, in its capacity as the provider of cash management services to the Borrowers.

“Default” has the meaning set forth in Section 13(a).

“EBITDA” means for Borrowers on a consolidated basis, net income (excluding non-recurring gains and extraordinary gains) before provision for interest expense, taxes, depreciation, amortization, and financing and transaction fees relating to the initial closing of this Agreement and the Acquisition ,determined in accordance with GAAP, and excluding, in any event, any non-cash impact on income or loss from application of variable accounting rules or requirements, and any expenses associated with original issue discounts and Stock based compensation.

“Employment Agreements” means, collectively, the Employment Agreements between Parent and each of (i) Patrick C. Shutt, (ii) George A. King, (iii) Robert A. Pollan, (iv) Jim McDevitt, and (v) Chris Conant, each as attached hereto as Exhibit D.

“Equipment” means all of each Borrower’s machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.

“Excess Cash Flow” means, with respect to any fiscal period for the Borrowers on a consolidated basis determined in accordance with GAAP, (a) EBITDA, plus (b) any net decrease (or minus any net increase) in Adjusted Working Capital during such period, minus (c) the sum of (i) the cash portion of interest actually paid during such period, (ii) the cash portion of income taxes paid during such period, (iii) all principal payments made in cash with respect of the Term Loan (if any), and (iv) the cash portion of capital expenditures made during such period and in accordance with Item 21 of the Addendum.

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“Excluded Equipment” means the Equipment owned by any Borrower or Vanco, as the case may be, and used in connection with the delivery of telecommunications services as part of the respective business operations of any Borrower or Vanco within the Applicable Authorization States.

“Extraordinary Receipts” means any cash received by a Borrower with respect to (a) federal and state tax refunds (but only to the extent such state tax refunds exceed $25,000, in the aggregate in any fiscal year), (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance and, unless Agent provides its prior written consent otherwise, business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, including without limitation, awards or settlements in respect of condemnation and eminent domain proceedings, (e) indemnity payments, (f) any purchase price adjustment received in connection with any purchase agreement (other than relating to ordinary purchases of goods and services in the ordinary course of business), excluding in all events, any future proceeds from the previous asset sale transactions involving Nexvu or FNS, and (g) at any time that a Default shall exist and at the sole discretion of Agent, any other cash received by a Borrower not in the ordinary course of business.

“FCC” means the U.S. Federal Communications Commission.

“Final Closing” means the release from escrow of the Purchased Membership Interests pursuant to the Acquisition Documents.

“Funding Date” means a date (i) no later than one (1) Business Day following the delivery of notification to the Agent, in form and substance satisfactory to Agent in its sole discretion, that the STA Requests (as such term is defined in the Interest Purchase Agreement) have been approved and (ii) on which satisfaction of the applicable conditions set forth in Item 2 of the Addendum have occurred.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination and applied on a consistent basis.

“General Intangibles” means all of each Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of each Borrower (including payment intangibles, all rights under insurance policies and any and all choses or things in action, goodwill, patents and patent applications, trade names, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as each Borrower’s books and records relating to any of the foregoing.

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“Goods” means all of each Borrower’s present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software to the extent included in “goods” as defined in the UCC, manufactured homes, and standing timber that is to be cut and removed for sale.

“Governing Documents” shall mean, with respect to any Person, its certificate or articles of incorporation, certificate of formation, or, as the case may be, certificate of limited partnership, its by-laws, operating agreement or, as the case may be, partnership agreement or other constitutive documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state, local or foreign national or provincial and all agencies thereof, including, without limitation, any domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions.

“HSBC Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and HSBC USA, National Association.

“Indebtedness” shall mean the aggregate amount of, without duplication, (a) all obligations of each Borrower for borrowed money, (b) all obligations of each Borrower evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of each Borrower to pay the deferred purchase price of property or services (excluding trade payables that are aged less than ninety (90) days), (d) all Capitalized Lease Obligations of each Borrower, (e) all obligations or liabilities of any other Person secured by a Lien on any asset of any Borrower, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by any Borrower; and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of any Borrower.

“Intellectual Property” means any and all licenses, patents, copyrights, trademarks, designs and the goodwill associated with such trademarks.

“Interest Expense” means, for any period, the aggregate of the interest expense of the Borrowers for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Purchase Agreement” means that certain Interest and Loan Purchase Agreement dated as of November 14, 2008 among CG Acquisition, Seller, and the Administrators party thereto.

“Inventory” means all of each Borrower’s inventory as defined in the UCC, together with all of each Borrower’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of each Borrower’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

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“Investment” shall mean the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, any Person.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments, certificates and other documents executed and/or delivered in connection with this Agreement, including collateral documents, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments, subordination agreements, intercreditor agreements, warrants and registration rights agreements (it being understood, however, that any termination of this Agreement shall not terminate or otherwise limit Agent’s or any Lender’s rights under any such warrant, registration rights agreement or other related document unless Agent expressly so agrees in writing) and all other agreements executed or delivered by any Borrower or any other Credit Party or any Affiliate of any Borrower or any other Credit Party pursuant hereto or in connection herewith.

“Magenta Account” has the meaning set forth in Section 7(k)(ii).

“Magenta Three-Party Account Agreement” shall mean the Three-Party Account Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, Magenta and HSBC Bank, plc.

“Management Services Agreement” means that certain Management Services Agreement dated as of November 14, 2008, among CG Acquisition, Seller, and the Administrators party thereto.

“Material Adverse Effect” shall mean any state of facts, events, changes or effects that is materially adverse to or materially impairs: (a) the business, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Borrowers taken as a whole; (b) the ability of Borrowers to perform the Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or any of the Lenders to enforce any of its rights or remedies with respect to the Obligations or under the Loan Documents; or (c) the Collateral (including the value and condition thereof) or Agent’s or any Lender’s Liens on the Collateral or the priority of such Liens.

“Material Contract” means, with respect to any Person, (i) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person or such Subsidiary of $250,000 or more, (ii) the Acquisition Documents and (iii) all other contracts or agreements material to the business, operations, condition (financial or otherwise), performance, prospects or properties of such Person or such Subsidiary.

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“Monthly Recurring Circuit Revenue” means the aggregate monthly invoice amount for all monthly billings issued by any of the Borrowers with respect to their circuit business. The monthly recurring circuit revenue will equal the total monthly billing amount determined as of the date the Borrowers issue their monthly invoices (usually the 1^st day of the month).

“Negotiable Collateral” means all of each Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and each Borrower’s books and records relating to any of the foregoing.

“Net Cash Proceeds” means:

(a)with respect to any sale or disposition by a Borrower of property or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under this Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by a Borrower in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction;

(b)with respect to the issuance or incurrence of any Indebtedness by a Borrower, or the issuance by a Borrower of any shares of its Stock (excluding sales of Stock in the Parent pursuant to warrants or options in existence as of the date hereof), the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of a Borrower in connection with such issuance or incurrence, after deducting therefrom only (i) all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such issuance or incurrence, and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction; and

(c)with respect to any Extraordinary Receipts received by a Borrower, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such Extraordinary Receipts, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such Extraordinary Receipts.

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“New Lending Office” has the meaning set forth in Section 2(o).

“Nexvu Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by Nexvu in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Nexvu Manager, Inc. and Nexvu APM, LLC.

“Obligations” means all indebtedness, obligations and liabilities of each Credit Party to Agent, any of the Lenders, and any of their Affiliates, individually or collectively, under the Loan Documents, whether now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise, or whether evidenced by any instrument, agreement or book account, including, but not limited to, the Term Loan (including any modification, renewal or extension), and all interest, taxes, fees, charges, expenses, indemnity obligations and attorney’s fees (whether or not such attorney is a regularly salaried employee of Agent or any of the Lenders or any of their Affiliates) chargeable to any Credit Party or incurred by Agent or any of the Lenders under this Agreement or any other Loan Document.

“Parent Stock Pledge Agreement” means that certain Pledge Agreement of even date herewith granted by Parent in favor of Agent, on behalf if itself and the Lenders, with respect to its Stock in CentrePath, GCG, 20/20 Inc., FNS, Nexvu and CG Acquisition.

“Participant Register” has the meaning specified therefor in Section 16(f)(vii).

“Permitted Dispositions” means (a) sales or other dispositions of Inventory and Equipment that is substantially worn, damaged, or obsolete or no longer used or usable in the business of the Borrowers, in each case, in the ordinary course of business and for fair consideration and on terms no less favorable to the Borrowers than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and (b) sales of Inventory to buyers in the ordinary course of business.

“Permitted Indebtedness” shall mean and include: (a) the Obligations; (b) Indebtedness arising from the endorsement of instruments in the ordinary course of business of a Borrower; (c) Subordinated Debt; (d) Indebtedness existing as of the date hereof to the extent listed on Item 9 of the Addendum; (e) Indebtedness in connection with purchase money security interests constituting Permitted Liens and Capitalized Leases not to exceed, in aggregated principal amount for all Borrowers on a consolidated basis, the amount set forth on Item 20 of the Addendum at any one time outstanding; (f) Indebtedness consisting of reimbursement obligations under surety, indemnity, performance, release and appeal bonds and guarantees thereof and letters of credit issued to landlords in the ordinary course of business of a Borrower; and (g) extensions, refinancings, refundings, renewals, modifications, amendments and restatements of any Permitted Indebtedness that do not increase the principal amount or interest rate per annum thereof, shorten the maturity thereof or accelerate the principal payments thereof.

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“Permitted Investments” shall mean and include: (a) deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent such deposits are fully insured by the Federal Deposit Insurance Corporation in which Agent has a perfected, first-priority security interest, and up £75,000 at any time in the Magenta Account, as disclosed to Agent on Item 14 of the Addendum, in the United Kingdom without such a security interest and provided such account shall be maintained at all times in accordance with the terms of Section 7(k)(ii) of this Agreement; (b) Investments in money market accounts maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (c) Investments in certificates of deposit maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (d) Investments in marketable obligations issued or fully guaranteed by the United States, or any agency thereof, and maturing not more than one (1) year from the date of acquisition; (e) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (f) Investments existing on the date hereof to the extent listed on Item 7 of the Addendum; (g) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business of a Borrower, but only to the extent the same are entered into to hedge risk and not for speculation; (h) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business of the Borrowers; and (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business the Borrowers.

“Permitted Liens” means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment, stay of execution or injunction; (iv) the performance of bids, tenders or contracts (other than for the repayment of borrowed money); (v) indemnity, performance or other bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money); and (vi) obligations to landlords in the ordinary course of business of the Borrowers; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such property or materially detract from the value of such property; (d) Liens existing on the Agreement Date and described on Item 1 of the Addendum; (e) Liens on Equipment securing all or part of the purchase price of such Equipment; provided, however, that (i) such Lien is created contemporaneously with the acquisition of such Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the Indebtedness incurred to acquire such Equipment; (f) so long as the Debenture Intercreditor Agreement is in full force and effect, Liens on all or substantially all assets of Borrowers in favor of the Debenture Purchasers to secure the Debenture Indebtedness, including the indebtedness described in Item 9 of the Addendum; (g) Liens arising from judgments, decrees or attachments that do not constitute a Default under this Agreement; and (h) Liens in favor of Agent or any of the Lenders securing any of the Obligations.

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“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“PIK Interest” has the meaning set forth in the definition of “Applicable Margin”.

“Prime Rate” means, at any time, the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s thirty (30) largest banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three (3) largest U.S. money center commercial banks, as determined by Agent. Notwithstanding the foregoing, for purposes of this Agreement, at no time shall the Prime Rate be less than five percent (5.0%) per annum. The Prime Rate may not be the lowest or best rate at which Agent calculates interest or the Lenders extend credit. Any change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change.

“Private Bank Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and the Depository Bank.

“Pro Rata Share” means the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the Total Commitment.

“Purchased Membership Interests” means the membership interests of Vanco to be purchased by CG Acquisition pursuant to the Acquisition Documents.

“Recurring Circuit Margin” means for a particular measurement period (i) the difference between the Monthly Recurring Circuit Revenue for the months comprising such measurement period and (ii) the direct cost to Borrowers of any circuits included within Monthly Recurring Circuit Revenue for the months included within such measurement period, but excluding any costs which are non-recurring.

“Register” has the meaning set forth in Section 16(f)(iv).

“Registered Loan” has the meaning set forth in Section 16(f)(iv).

“Required Lenders” means Lenders whose Pro Rata Shares aggregate at least 50.1%.

“Related Fund” means, with respect to any Person, an Affiliate of such Person, or a fund or account managed by such Person or an Affiliate of such Person.

“Seller” means Vanco plc (in administration), a United Kingdom corporation.

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“Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act) or equivalent securities issued by Magenta or any other foreign subsidiary.

“Strategic Sourcing Business Unit” means the segment of the Borrowers’ business that provides network services for clients, including design, installation, provisioning, management and monitoring of circuits.

“Subordinated Debt” means (a) so long as the Debenture Intercreditor Agreement remains in full force and effect, the Debenture Indebtedness, and (b) all of the Indebtedness owed by any Borrower to any other Person, the repayment of which is subordinated to the repayment of the Obligations pursuant to the terms of a subordination agreement approved by Agent and the Required Lenders in writing in their sole discretion.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or managing member or may exercise the powers of a general partner whether directly or indirectly, and (c) any other Person (other than a corporation, limited liability company or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Term Loan” has the meaning set forth in Section 2(a).

“Term Note” has the meaning set forth in Section 2(b).

“Total Commitment” means the sum of the amounts of the Lenders' Commitments.

“Transferee” has the meaning set forth in Section 2(o).

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, however, that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

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Other Definitional Provisions. References to the “Addendum” or any “Section” or “Exhibit” refer to the Addendum or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement: words importing any gender include the other genders; the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; all references to time of day shall refer to New York, New York time; and all references to financial calculations or statements on a “consolidated” basis mean calculations or statements that reflect information and results with respect to Borrowers and no other Person. Unless otherwise specifically indicated, all monetary amounts and references herein refer to United States dollars, and all amounts to be loaned and paid hereunder shall be in United States dollars. In the event that Agent receives any payment in any currency other than United States dollars, Agent shall determine the conversion rate with respect to such amount in its reasonable discretion for purposes of determining the amount of the Obligations that have been satisfied.

2.Borrowing and Terms of Payment.

(a)The Term Loan. Subject to the terms and conditions set forth in this Agreement, each Lender, simultaneously and proportionately to their Pro Rata Shares of the Total Commitment, agrees to make a term loan in favor of the Borrowers to be funded on the Funding Date (the “Term Loan”). Any portion of the Total Commitment not funded on the Funding Date, shall not be available to the Borrowers without the Agent’s express written consent. Subject to satisfaction of the applicable conditions set forth in Item 2 of the Addendum,on the Funding Dateeach Lender shall disburse the proceeds of the Term Loan to the Borrowers or as the Borrowers’ Agent shall request in writing. Amounts repaid in respect of the Term Loan may not be reborrowed.

(b)The Term Note. The Term Loan shall be evidenced by separate promissory notes of the Borrowers in the form of Exhibit C attached hereto payable to each Lender (the “Term Note”) in the original principal amount of such Lender’s Commitment, dated as of the Agreement Date (or such other date on which a Lender may become a party hereto in accordance with Section 16(f) hereof)and completed with appropriate insertions.

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(c)Mandatory Prepayments.

(i)Immediately upon the receipt by any Borrower of the proceeds of any voluntary or involuntary sale or disposition by any Credit Party of property or assets (including casualty losses or condemnations but excluding sales or dispositions which qualify as Permitted Dispositions) (“Borrower Asset Sales”), Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such Borrower Asset Sale; provided that, solely in respect of any Borrower Asset Sales, so long as (A) no Default shall have occurred and is continuing, (B) Borrower’s Agent shall have given Agent prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the monies are held in a cash collateral account in which Agent, for the benefit of the Agent and the Lenders has a perfected first priority security interest, and (D) Borrowers complete such replacement, purchase, or construction within 90 days after the initial receipt of such monies, Borrowers shall have the option to apply such monies to the costs of replacement of the property or assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent for application against the Obligations. Nothing contained in this Section 2(c)(i) shall permit any Borrower to sell or otherwise dispose of any property or assets other than in accordance with the terms and conditions of this Agreement.

(ii)Immediately upon the receipt by any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Extraordinary Receipts.

(iii)Immediately upon the issuance or incurrence by any Borrower of any Indebtedness (other than Indebtedness permitted hereunder) or the issuance by any Borrower of any shares of such Borrower’s Stock (excluding sales of Stock of the Parent pursuant to warrants or options in existence as of the date hereof) Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such issuance or incurrence. The provisions of this Section 2(c)(iii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(iv)No later than two (2) Business Days following the receipt by any Borrower of any BT Receivable Payment, Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to sixty-six percent (66%) of the BT Receivable Payment received by such Person. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

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(v)Within ten (10) days following delivery to Agent and the Lenders of Borrowers’ monthly financial statements pursuant to Section 9(a) for the month ended December 31, 2009 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 9(a), ten (10) days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 9(a), Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to 50% of the Excess Cash Flow of the Borrowers for fiscal year 2009. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have overpaid the Excess Cash Flow payment referred to herein, then the Agent shall credit such overpayment to any interest then due and payable, if any, or the Borrowers’ next scheduled payment of interest if no interest is then due and payable. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have underpaid the Excess Cash Flow payment referred to herein, then the amount of such underpayment shall be immediately due and payable in cash to the Agent for application to any outstanding Obligations. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

(d)Voluntary Prepayments. Borrowers may prepay the principal balance of the Term Loan in whole or in part at any time upon at least 30 days’ prior written notice from Borrowers’ Agent to Agent (which notice, once given shall be irrevocable). Any such prepayment of principal shall be accompanied by accrued interest on the amount so prepaid and any fees pursuant to Section 3(c) due and payable on the amount so prepaid. Any portion of the Term Loan prepaid hereunder may not be reborrowed.

(e)Conditions to Obligation to Making of the Term Loan. Borrowers acknowledge that Lenders’ obligation to make the Term Loan to Borrowers is subject to the following terms and conditions:

(i)Agent has no obligation to make the Term Loan to Borrowers or to extend any other financial accommodation to any Borrower unless and until (A) Borrowers deliver to Agent, in form and substance satisfactory to Agent in its discretion, each agreement, instrument, legal opinion and other document specified on Item 2 of the Addendum,and (B) each other condition precedent specified on Item 2 of the Addendumhas been satisfied in a manner satisfactory to Agent in Agent’s sole discretion. Once the conditions described in this Section 2(e) have been satisfied in Agent’s sole and absolute discretion, Agent shall provide Lender with a letter confirming same.

(ii)Lenders’ obligation to make the Term Loan to Borrowers and extend other financial accommodations to Borrowers is subject to the conditions that, as of the Agreement Date, (A) no Default will have occurred and be continuing hereunder, (B) there will have occurred no event or circumstance which has had or which could reasonably be expected to have a Material Adverse Effect, (C) Borrowers’ representations and warranties set forth in this Agreement and the other Loan Documents will be true and correct and (D) the Borrowers’ application for Special Temporary Authority has been approved by the applicable governmental authorities, as defined and described in the Interest Purchase Agreement.

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(f)Repayment of Term Loan. The entire outstanding principal balance of the Term Loan, together with all accrued and unpaid interest and all other outstanding Obligations, shall be due and payable on the Termination Date as provided for in Item 3 of the Addendum, unless sooner due as a result of acceleration or demand hereunder. Borrowers shall make each payment required hereunder or under any other Loan Document without setoff, deduction or counterclaim. All payments by Borrowers shall be made to Agent’s for the account of the Lenders or as otherwise directed by the Agent in writing from time to time and shall be made in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. Any payment received by Agent (or such Person to whom the Agent has directed payment) later than 2:00 p.m. (New York City time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(g)Maturity. This Agreement will continue in full force and effect from the Agreement Date until the Termination Date provided for in Item 3 of the Addendum.

(h)Termination on Default. Notwithstanding the foregoing, should a Default occur and be continuing, Agent will have the right to terminate this Agreement at any time without notice.

(i)Survival. Notwithstanding termination, all the terms, conditions, and provisions hereof (including Agent’s security interest in the Collateral, but excluding any obligations of Agent hereunder) will continue to be fully operative until all Obligations have been fully disposed of, concluded, paid, satisfied, and liquidated (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and obligations under the warrant and registration rights agreement issued or executed in connection herewith). All indemnification obligations of Borrowers hereunder and under the other Loan Documents shall survive termination of this Agreement and the other Loan Documents.

(j)Borrowers’ Agent. Each Borrower other than Parent hereby appoints Parent, and Parent shall act under this Agreement and the other Loan Documents, as, the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent, and each of the Lenders, may rely, and shall be fully protected in relying, on any disbursement instruction, report, information or any other notice or communication made or given by Parent, whether in its own name, as Borrowers’ Agent, or on behalf of one or more Borrowers, and Agent and each of the Lenders, shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers’ obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Borrower from taking actions permitted to be taken by a “Borrower” hereunder.

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(k)Joint and Several Liability.

(i)The Term Loan made to Borrowers and all of the other Obligations of Borrowers, including all interest, fees and expenses with respect thereto, shall constitute one joint and several direct and general obligation of all Borrowers. Notwithstanding anything to the contrary contained herein, each Borrower shall be jointly and severally, with each other Borrower, directly and unconditionally liable to Agent and each of the Lenders for all Obligations, it being understood that the Term Loan to each Borrower inures to the benefit of all Borrowers, and that Agent and each of the Lenders are relying on the joint and several liability of Borrowers as co-makers in extending the Term Loan hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any Obligation payable to Agent or any of the Lenders, it will forthwith pay the same, without notice or demand, unless such payment is then prohibited by application of law (provided such Obligation shall not be extinguished by any such prohibition).

(ii)No payment or payments made by any Borrower or any other Person or received or collected by Agent from any Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of each Borrower under this Agreement, and each Borrower shall remain liable for all of the remaining Obligations until the Obligations are paid in full.

(l)Obligations Absolute. Each Borrower agrees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any of the Lenders with respect thereto, unless such payment is then prohibited by applicable law (provided such Obligation shall not be extinguished by any such prohibition.) All Obligations shall be conclusively presumed to have been created in reliance hereon. The Obligations and other liabilities under this Agreement and the other Loan Documents shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the extension of additional credit to any Borrower or otherwise; (iii) any taking, exchange, release of or non-perfection in any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate or limited liability structure or existence of any Borrower; or (v) any other circumstance which may otherwise constitute a defense available to, or a discharge of, any Borrower. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Agent or any of the Lenders upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.

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(m)Waiver of Suretyship Defenses. Each Borrower agrees that the joint and several liability of Borrowers provided for in this Agreement shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which one or more other Borrowers may hereafter agree (other than an agreement signed by Agent specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Agent with respect to any of the Obligations, nor by any other agreements or arrangements whatever with one or more other Borrowers or with any other Person, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the Obligations and may be enforced without requiring Agent first to resort to any other right, remedy or security. Each Borrower hereby expressly waives promptness, diligence, notice of acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and any requirement that Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other Person or any Collateral.

(n)Contribution and Indemnification among Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting any of the Term Loan made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then, to the extent that such Borrower has not received the benefit of such repaid Obligations (whether through an inter-company loan or otherwise), the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount (as defined below) and the denominator of which fraction is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the greater of (i) the amount of such repaid Obligations actually received by such Borrower (whether through an inter-company loan or otherwise), and (ii) the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (x) rendering such Borrower “insolvent” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”), Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (y) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (z) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification and reimbursement under this paragraph shall be subordinate in right of payment to the prior payment in full of the Obligations.

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(o)Non-U.S. Lender. Each Lender (or any transferee or assignee thereof, including a participation holder (any such entity, a “Transferee”), that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “NonU.S. Lender”) shall deliver to the Agent and the Borrowers two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881 (c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), in each case claiming complete exemption from U.S. Federal withholding tax on payments by the Credit Parties under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms or any other forms required under applicable law within 20 days after receipt of a written request therefor from the Borrowers or the Agent. Notwithstanding any other provision of this Section 2(o), a Non-U.S. Lender shall not be required to deliver after the date hereof any form pursuant to this Section 2(o) that such Non-U.S. Lender is not legally able to deliver.

3. Interest and Fees.

(a)Interest on the Term Loan. The Term Note shall bear interest at the Applicable Rate. Interest on the Term Note shall be computed on the basis of the actual number of days elapsed over a year of 360 days. All accrued interest on the Term Note shall be payable monthly in arrears, in cash or in PIK Interest, as specified in the definition of Applicable Margin.

(b)Default Interest. To the extent permitted by law and without limiting any other right or remedy of Agent or any of the Lenders hereunder, whenever there is a Default under this Agreement, the rate of interest on the unpaid principal balance of the Obligations shall, at the option of Agent or the Required Lenders, be increased by adding the default margin identified on Item 4 of the Addendum to the interest rate otherwise in effect hereunder. In addition, upon the occurrence and during the continuation of a Default under this Agreement, all accrued PIK Interest shall immediately become due and payable in full and without any notice, demand or presentment of any kind notwithstanding any acceleration by the Required Lenders hereunder. Agent may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Borrowers acknowledge that: (i) such additional rate is a material inducement to Lenders to make the Term Loan described herein; (ii) Lenders would not have made the Term Loan in the absence of the agreement of Borrowers to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lenders that the Term Loan will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Agent and each of the Lenders in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Term Loan, and (B) compensation to Agent and each of the Lenders for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Agent’s and each of the Lenders’ entitlement to this charge will continue until all Obligations are paid in full.

(c)Fees. Borrowers will pay to Agent (to be allocated among the Lenders in accordance with their Pro Rata Shares) the fees set forth in Item 5 of the Addendum.

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(d)No Usury. Borrowers acknowledge that Agent does not intend to reserve, charge or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Agent should collect any amount from Borrowers which, if it were interest, would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations remain outstanding, will be refunded to Borrowers.

4. Representations and Warranties of Borrowers.

(a)Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc. Borrowers represent and warrant to Agent and the Lenders that: (i) the exact legal name, type of organization, jurisdiction of organization and organizational identification number of each Borrower are fully and accurately set forth on Item 6 of the Addendum, and each Borrower is duly organized and validly existing under the laws of its jurisdiction of organization; (ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Borrower’s corporate or limited liability company powers, have been duly authorized by all necessary corporate or limited liability company action, do not violate (A) any Borrower’s constituent documents, any law or regulation, including without limitation, (B) any law or regulation relating to occupational health and safety or protection of the environment, applicable to any Borrower, or any indenture, agreement, or undertaking to which any Borrower is a party or by which any Borrower or any Borrower’s property is bound, except where such violation could not reasonably be expected to have a Material Adverse Effect; (iii) this Agreement and the other Loan Documents to which any Borrower is a party constitute valid, binding and enforceable obligations of each Borrower party thereto in accordance with the terms hereof and thereof, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors’ rights generally or by generally applicable equitable principles affecting the enforcement of creditors’ rights; (iv) no Borrower has any subsidiaries or other investments in other Persons, except as set forth on Item 7 of the Addendum and except for other Permitted Investments; (v) except as set forth on Item 29 of the Addendum, each Borrower is in compliance in all material respects with all laws, rules and regulations applicable to such Borrower, including laws, rules or regulations concerning the environment, occupational health and safety and pensions or other employee benefits; (vi) except as set forth on Item

8 of the Addendum, there is no litigation or investigation pending against any Borrower (or, so far as any Borrower is aware, threatened) which, if it were decided adversely to such Borrower, could reasonably be expected to have a Material Adverse Effect (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the Term Loan hereunder, no Borrower is indebted to any other Person for money borrowed nor has any Borrower issued any guaranty of payment or performance by any other Person, except for Permitted Indebtedness; (viii) since the date of the financial statements of Borrowers most recently delivered to Agent, there has been no material adverse change in any Borrower’s business, any Borrower’s financial or operational condition or any Borrower’s business prospects; and (ix) each Borrower is, and after giving effect to the consummation of the Acquisition, the incurrence of the Term Loan under this Agreement and the application of the proceeds of such Term Loan, the Borrowers, on a consolidated basis, will be, solvent and will have sufficient revenues to pay the Borrowers’ obligations as they come due and adequate capital with which to conduct the Borrowers’ business, all determined on a consolidated basis.

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(b)Title to Assets, Other Collateral Matters. Borrowers represent and warrant to Agent and the Lenders that: (i) subject to the escrow established for the Purchased Membership Interests pursuant to the Acquisition Documents, Borrowers have good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust, security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by any Borrower, except in Agent’s favor for the benefit of the Agent and the Lenders, and except with respect to Permitted Liens; (ii) the Accounts are not subject to any material dispute, claim or right of offset and are validly owing by the applicable Customers and, subject to immaterial exceptions, are collectible by Borrowers in the ordinary course of business; (iii) all Inventory is in good condition, meets all applicable governmental standards and is currently usable or saleable in the ordinary course of the applicable Borrower’s business for a price approximating at least such Borrower’s cost thereof; (iv) all Equipment is in good condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards in all material respects; (vi) in the past five years, except as set forth on Item 9 of the Addendum (A) no Borrower has used any other legal, trade or fictitious names, and (B) other than the Acquisition, no Borrower has been a party to any merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) the chief executive office and principal place of business of each Borrower, all Inventory, all Equipment and all other Collateral is located at the addresses (including the county) set forth on Item 11 of the Addendumand has not been located at any other location during the five year period prior to the Agreement Date.

(c)Ownership Structure.Borrowers represent and warrant that Item 12 of the Addendum accurately describes the ownership of each Borrower’s capital stock, membership interests or other equity interests.

(d)Acquisition. Borrowers represent and warrant to Agent and the Lenders that (i) Borrowers have furnished to Agent true, complete and correct copies of all of the Acquisition Documents (including any schedules, exhibits and annexes thereto) as in effect on the date hereof; (ii) none of the Acquisition Documents has been amended, supplemented or modified; (iii) the Acquisition Documents constitute the complete understanding among the parties thereto in respect of the Acquisition and the other matters and transactions covered thereby; (iv) each Acquisition Document has been duly executed and delivered by the parties thereto and is a legal, valid and binding obligation of each such party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles; and (v) the Borrowers are not aware of any fact or circumstance that would prohibit the Acquisition from occurring including, without limitation, the Final Closing.

(e)Consummation of Transactions. Subject to the occurrence of the Final Closing upon satisfaction of the conditions precedent set forth in Section 1.5 of the Interest Purchase Agreement, Borrowers represent and warrant to Agent and the Lenders that, on the Agreement Date, the transactions contemplated by the Acquisition Documents will have been consummated in accordance with all applicable laws (except where such non-compliance could not reasonably be expected to have a Material Adverse Effect) and, except as consented to in writing by Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the material conditions to such consummation set forth in the Acquisition Documents shall have been fulfilled without any waiver of any such material conditions. Agent acknowledges that the Purchased Membership Interests shall be held in escrow pursuant to the satisfaction of certain conditions specified in the Interest Purchase Agreement, and Borrowers represent and warrant to Agent and Lenders that (i) the Purchased Membership Interests will be owned by CG Acquisition free of such escrow arrangement or any claim by Seller no later than 90 days after the Agreement Date, and (ii) the Seller has no right to remove the Purchased Membership Interests from such escrow arrangement or otherwise reclaim the Purchased Membership Interests or prevent CG Acquisition from becoming the absolute owner thereof no later than 90 days following the Agreement Date.

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(f)Licenses and Governmental Approvals. Borrowers represent and warrant to Agent and Lenders that, except for those Governmental Approvals the absence of which could not reasonably be expected to have a Material Adverse Effect, (i) each Borrower has all Governmental Approvals required by applicable law in order to operate its business; (ii) all such Governmental Approvals are in full force and effect; and (iii) Agent and each of the Lenders are not required to obtain any such Governmental Approval in order to enter into the transactions contemplated by this Agreement or to exercise their rights and remedies hereunder (including the liquidation of the Collateral and collecting the Accounts), except for such consents and approvals as may be required by the FCC or any state public service commission in connection with the transfer of control or assignment of a licensee of, or an authorization or license issued by such governmental entity to Vanco and as set forth on Item 29 of the Addendum and except for such consents and approvals that that would be required under federal law for Agent and each of the Lenders to exercise their rights and remedies hereunder.

(g)Additional Representations. Borrowers represent and warrant to Agent and the Lenders that: (i) no Borrower is engaged as one of such Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) no Borrower owns any real property or leases any real property other than as listed on Item 13 of the Addendum; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Item 13 of the Addendum; and (iv) a true, correct and complete list and brief description of all bank accounts maintained by each Borrower with any bank or financial institution is set forth on Item 14 of the Addendum.

(h)Intellectual Property. Borrowers represent and warrant to Agent and the Lenders that, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Item 15 of the Addendum is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Borrower is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, to the best knowledge of Borrowers, after reasonable inquiry, threatened in writing to be brought against any Borrower which would be reasonably likely to jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications.

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(i)Leases. Borrowers represent and warrant that, each Borrower enjoys peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by a Borrower exists under any of them.

(j)Material Contracts. Borrowers represent and warrant that, set forth on Item 16 of the Addendumis a description of all Material Contracts of the Borrowers, showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the applicable Borrower and, to the best of Borrowers’ knowledge, each other Person that is a party thereto in accordance with its terms, (b) is not in default due to the action or inaction of any Borrower and (c) neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under any Material Contract.

(k)Customers and Suppliers. Borrowers represent and warrant that, set forth on Item 17 of the Addendum is a list of the top 20 largest customers of the Credit Parties and the top 20 largest suppliers of Credit Parties, in each case for the year ended December 31, 2007 and the six-month period ended June 30, 2008. Except as contemplated by the BT Receivables Agreement, there has not been, and none of Credit Parties have received notice of, any termination or cancellation of, or a materially adverse modification or change in, the business relationship with any of the 10 largest customers and suppliers, and, to the knowledge of Credit Parties, such customers and suppliers intend to renew their customer or supplier contracts, as applicable, in the ordinary course and on terms as favorable as those currently in place.

(l)Taxes. Borrowers represent and warrant that, each of the Credit Parties has filed all federal, state, and other tax returns and reports required to be filed, and have paid all federal, state, and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable.

(m)FCC Licenses, Etc. Except for any change of control or similar applications to be filed with respect to Vanco as described in Item 29 of the Addendum, Borrowers represent and warrant that, all FCC, state public utility commission and other required permissions and licenses are in good standing, and that Borrowers are not aware of any claim, purported claim or unrealized claim against the validity of the Borrowers’ ability to operate now and into the future under such existing licenses.

(n)Working Capital. Borrowers represent and warrant that after giving effect to the transactions contemplated in the Debenture Documents and this Agreement (i) the Borrowers, on a consolidated basis, have not less than (a) ($8,453,687) in Adjusted Working Capital and (b) not less than $6,000,000 in cash;  and (ii) the aging and collectability of the Borrowers' accounts receivable is in all material respects similar to the aging and collectability of the accounts receivable reflected by the financial statements delivered to Agent pursuant to Item 2(p) of the Addendum. 

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5. Collateral.

(a)Grant of Security Interest. To induce the Lenders to accept this Agreement and to make the Term Loan to Borrowers, each Borrower hereby grants to Agent, for itself and as agent for each Lender, a security interest in, and assigns, mortgages and pledges to Agent, for itself and as agent for any each Lender, all of such Borrower’s right, title and interest in and to all of such Borrower’s property (other than Excluded Equipment), whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising, including all of the following (collectively, the “Collateral”):

(i)all Accounts,Inventory, Equipment (other than Excluded Equipment), Goods, General Intangibles, Intellectual Property and Negotiable Collateral;

(ii)all investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts and all funds on deposit therein;

(iii)all chattel paper (whether tangible or electronic) and contract rights;

(iv)all guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

(v)all documents, books and records relating to any Collateral or to any Borrower’s business;

(vi)all Governmental Approvals and all proceeds from Governmental Approvals, but in each case only to the extent permitted under applicable law (including, without limitation, the Communications Act of 1934);

(vii)all other property of any Borrower now or hereafter in the possession or control of Agent or any of Agent’s Affiliates (including cash, money, credits and balances of any Borrower held by or on deposit with Agent or any Affiliate of Agent);

(viii)all other assets of any Borrower in which Agent receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody or control of Agent or any Affiliate of Agent;

(ix)all of each Borrower’s commercial tort claims listed on (A) Item 18 of the Addendum(which Borrowers represent and warrant is a true, accurate and complete list of all of each Borrower’s commercial tort claims as of the Agreement Date) or (B) any other writing provided to Agent pursuant to Section 7(g); and

(x)all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

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(b)Obligations. Such grant, assignment, mortgage and transfer is made for the purpose of securing, and the Collateral secures and will continue to secure, all of the Obligations; provided that upon satisfaction of all Obligations other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement, the Lenders shall release any Liens in the Collateral.

(c)Excluded Equipment. Borrowers agree that Agent shall automatically have a security interest in the Excluded Equipment promptly after receiving any Governmental Approvals required for the lawful grant of such security interest. Borrowers agree to execute and deliver to Agent such security agreements and other documents confirming such grant as Agent may reasonably request, but any failure to do so shall not limit Agent’s security interest therein pursuant to the first sentence of this paragraph. Each Borrower represents and warrants to Agent that it does not own any Excluded Equipment.

6.Financial Covenants. Unless the Required Lenders shall otherwise consent in writing, the Borrowers, on a consolidated basis, shall comply with each of the financial covenants set forth on Item 19 of the Addendum.

7.Collateral Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 7, unless the Required Lenders shall otherwise consent in writing.

(a)Accounts. Borrowers will notify Agent promptly of and settle all Customer disputes, but, if Agent so elects while a Default exists, Agent will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and conditions as Agent deems advisable without incurring liability to any Borrower for Agent’s performance of such acts. Agent may, at any time and from time to time, contact Customers to verify Accounts and, while a Default exists, Agent may notify Customers of Agent’s security interest in the Accounts and instruct such Customers to pay such Accounts to one of the bank accounts listed on Item 14 of the Addendum. All of each Borrower’s books and records concerning Accounts and a copy of each Borrower’s general ledger will be maintained at the address of Borrowers’ chief executive office set forth on Item 11 of the Addendum. All Accounts will be, in all material respects and except as otherwise indicated in writing to Agent, bona fideand existing obligations of Customers arising out of the sale of goods and/or the rendering of services by Borrowers in the ordinary course of Borrowers’ business, owned by and owing to the applicable Borrower without defense, setoff or counterclaim, and will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens.

(b)Inventory. All Inventory will at all times be located at one of the Inventory locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum, will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens. Sales of Inventory will be made in compliance with all material requirements of applicable law.

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(c)Equipment. Borrowers will maintain all Equipment used or useful in Borrowers’ business in good and workable condition, ordinary wear and tear excepted, and, except for Excluded Equipment only for the first 90 days after the Agreement Date, subject to a perfected, first-priority security interest in Agent’s favor and free and clear of all other Liens (other than Permitted Liens), at one of the locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum.

(d)Defense of Title. All Collateral will at all times be owned by Borrowers, and Borrowers will defend Borrowers’ title to the Collateral against the claims of third parties. Borrowers will at all times keep accurate and complete records of the Collateral.

(e)Perfection; Further Assurances. No Borrower shall change its name, jurisdiction of organization, type of organization or organizational identification number; provided, however, that Vanco may change its name to “Global Capacity Direct, LLC” so long as Borrowers provide Agent with at least 5 Business Days’ notice of such name change. Borrowers will give Agent at least 30 days’ prior written notice of any change in the location of any Borrower’s principal place of business or chief executive office, any change in the locations of any Borrower’s Inventory or Equipment and any acquisition by any Borrower of any interest in real property. Each Borrower will, at Borrowers’ expense, promptly execute and deliver from time to time at Agent’s request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary or desirable to perfect or continue perfection of Agent’s security interest in Borrowers’ property or, at Agent’s request, to create and perfect a Lien on newly acquired real property. Borrowers will use all reasonable efforts to obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Agent’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers shall, immediately upon written request therefor from Agent, endorse and assign such Negotiable Collateral over to Agent and deliver actual physical possession of the Negotiable Collateral to Agent. Borrowers shall at any time and from time to time take such steps as Agent may request for Agent (i) to obtain an acknowledgment, in form and substance satisfactory to Agent, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Agent, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or chattel paper (including electronic chattel paper) in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Agent, (iii) to have Agent’s Lien noted on each certificate of title evidencing any Collateral, and (iv) otherwise to insure the continued perfection and priority of Agent’s security interest in any of the Collateral and of the preservation of its rights therein. Agent may, from time to time at Borrowers’ expense, obtain an appraisal on some or all of the Collateral; provided, however, that Borrowers shall not be required to reimburse Agent for more than one such appraisal per calendar year (it being understood that any such appraisal conducted while a Default exists shall not count against such one-per-year limitation).

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(f)Insurance. Borrowers will obtain and maintain in full force and effect insurance covering the Collateral against all customary risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such customary risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent, which policies will name Agent, for itself and each of the Lenders, as an additional insured and provide that loss thereunder will be payable to Agent as Agent’s interests may appear upon a loss payee endorsement reasonably acceptable to Agent. Borrowers will also obtain and maintain in full force and effect liability insurance and such other types of insurance as Agent may reasonably require (including business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent. All proceeds of any such insurance will be paid over to Agent directly, and Agent may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Agent determines or, in Agent’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Borrowers will provide to Agent on or prior to the Agreement Date and from time to time thereafter, certificates showing such coverage in effect and, at Agent’s request, the underlying policies.

(g)Commercial Tort Claims. If any Borrower shall at any time acquire a commercial tort claim, Borrowers shall immediately notify Agent in a writing signed by the applicable Borrower of the details thereof and grant to Agent, for itself and each of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

(h)Financing Statements. Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrowers or words of similar effect and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the applicable Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and each Borrower hereby ratifies and re-authorizes any such financing statement filed by Agent on or prior to the Agreement Date. Each Borrower agrees to furnish any such information to Agent promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Agent on behalf of any Borrower or filed by Agent without the signature of any Borrower and may be filed at any time in any jurisdiction. Each Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any Borrower as the debtor and Agent as the secured party without the prior written consent of Agent, and each Borrower agrees that it shall not do so without the prior written consent of Agent.

(i) Governmental Approvals.

(i)Each Borrower shall maintain in full force and effect all Governmental Approvals required by applicable law in order to operate such Borrower’s business, except for those Governmental Approvals, the absence of which could not reasonably be expected to result in a Material Adverse Effect. Borrowers shall promptly notify Agent in the event that any such license or approval is revoked or if any Borrower receives any notice from any licensing authority or other governmental authority which alleges that any Borrower is or may be in violation of any applicable law, rule, regulation or licensing requirement.

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(ii)Borrowers shall, as described below, act immediately, upon notice of a Default, to permit Lender to realize the full value of foreclosure on the Collateral, including, without limitation, by obtaining any and all regulatory approvals required to do so. For example, and without limitation of the foregoing, if the approval of the FCC or any state public service commission is required in connection with any action taken by the Agent or any Lender (including any of their respective agents, officers, and attorneys) in the exercise of their rights and remedies hereunder with respect to the Collateral, in order to facilitate the intended realization of the value of the Collateral the Borrowers shall immediately and in no event later than three (3) Business Days following notice thereof take such action as is requested by Lender or Agent to obtain each and any approval required to allow a Lender the full benefit of the Collateral and Borrowers shall diligently pursue the obtaining of such approvals until obtained in accordance with the instructions of Agent or a Lender and applicable law. For avoidance of doubt, and by way of example, immediately upon notice thereof, Borrowers shall or shall cause their counsel to prepare, or at the option of Agent or a Lender to cooperate with counsel of Agent or a Lender in preparing, relevant applications to the FCC and each applicable state public service commission to seek approval of a substantial transfer of control of the applicable Borrower or its licenses and authorizations as instructed by Agent or a Lender, or to do any other action to protect for a Lender the value of the applicable Borrower’s licenses and authorizations. Without diminution of the foregoing, the Borrowers shall, immediately following the occurrence of a Default which is continuing, upon the written request and instructions of the Agent, execute and deliver (or cause the execution and delivery of) all relevant applications, certificates, instruments, agreements and other documents to the FCC or the applicable state public service commission, or at the option of Agent or a Lender, to Agent or a Lender for filing with Borrowers’ cooperation, which are required to be filed in connection with obtaining any required approval of the FCC or any state public service commission and take such other action as the Agent may request in connection therewith.

(j) Conduct of Business. The Borrowers shall conduct their business in substantially the same manner as currently conducted.

(k) Bank Accounts.

(i)The Borrowers (other than Magenta) will maintain their principal accounts for operation, administration, cash management and other deposit accounts for the conduct of the Borrowers’ business with the Depository Bank. On or prior to the Agreement Date, the Borrowers will establish and maintain (so long as the Obligations are outstanding), the Private Bank Account Control Agreement, which shall be applicable to all bank accounts of the Borrowers, other than the bank account maintained by Magenta in the United Kingdom and the account subject to the HSBC Account Control Agreement.

(ii) Magenta will maintain a single bank account (as disclosed to Agent on Item 14 of the Addendum) with HSBC Bank plc (the “Magenta Account”). On or prior to the Agreement Date, Magenta will establish and maintain (so long as the Obligations are outstanding), the Magenta Three-Party Account Agreement, pursuant to which all amounts deposited in the Magenta Account in excess of £75,000 shall automatically be transferred (on a daily basis if applicable) to the account of Borrowers identified in the Magenta Three-Party Account Agreement which is subject to the HSBC Account Control Agreement.

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(l)Employment Agreements. The non-compete provisions contained in the Employment Agreements shall remain in full force and effect and shall not be amended, modified or waived without the Agent’s written consent.

8.Negative Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 8, unless the Required Lenders shall otherwise consent in writing.

(a)No Merger or Disposition of Assets. No Borrower will merge or consolidate with any other Person, or purchase all or substantially all of the assets of any other Person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of such Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, each Borrower may make Permitted Dispositions.

(b)No Debt or Liens; Taxes. No Borrower will obtain or attempt to obtain from any Person other than Agent any loans, advances, or other financial accommodations or other Indebtedness of any kind, nor will any Borrower enter into any direct or indirect guaranty of any obligation of another Person, other than Permitted Indebtedness. No Borrower will permit any of its assets to be subject to any Lien other than Permitted Liens. Each Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrowers will, upon request by Agent, promptly furnish Agent with proof satisfactory to Agent that Borrowers have made such payments and deposits.

(c)No Distributions; Payments on Subordinated Debt. No Borrower will retire, repurchase or redeem any of such Borrower’s Stock in such Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of Stock) to any owner or holder of such Borrower’s Stock; provided, however, that any Borrower may pay cash dividends or distributions to any other Borrower which owns such Borrower’s Stock. No Borrower will refinance, repurchase, defease or make any payment on any Subordinated Debt, other than payments expressly permitted by the Debenture Intercreditor Agreement or subordination provisions applicable to such Subordinated Debt.

(d)No ERISA Liabilities. Borrowers will make timely payments of all contributions required to meet the minimum funding standards for Borrowers’ employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Agent the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by any Borrower of any governmental notice (other than routine requests for information) in respect of any such plan.

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(e)Transactions with Affiliates. No Borrower will engage in any transaction with any of such Borrower’s or any other Borrower’s officers, directors, employees or other Affiliates, except for an “arms-length” transaction on terms no less favorable to such Borrower than would be granted to such Borrower in a transaction with a Person who is not an Affiliate of any Borrower, which transaction shall be approved by such Borrower’s disinterested directors or managers and shall be disclosed in a timely manner to Agent prior to the consummation of the transaction.

(f)Loans/Investments. No Borrower will make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit to customers in the ordinary course of business; and (ii) Permitted Investments. No Borrower shall purchase, acquire or otherwise invest in any Person except Permitted Investments and investments in other Borrowers; provided, however, that the aggregate amount of intercompany advances and other transfers to Magenta by the other Borrowers shall not exceed the actual cash expenses of Magenta, which such actual cash expenses shall be in the ordinary course and consistent with past practices of Magenta. Without limiting the generality of the foregoing, no Borrower shall create any new subsidiary or make loans to, transfer any money or other assets to or otherwise invest in any subsidiary unless such subsidiary is or becomes a Borrower hereunder pursuant to documentation acceptable to Agent in its reasonable discretion.

(g)Capital Expenditures. Borrowers shall not make or incur capital expenditures in excess of the amount set forth on Item 21 of the Addendum during any fiscal year, determined for all Borrowers on a consolidated basis.

(h)Compensation. Borrowers shall not increase the total compensation paid to their officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year of Borrowers in an aggregate amount for all such officers and directors in excess of the limit specified in Item 22 of the Addendum.

(i)Amendments of Documents. No Borrower shall amend or modify (i) any Acquisition Document or any other note, instrument or agreement in connection with the Acquisition without the prior written consent of Agent, (ii) its articles or certificate of incorporation, articles or certificate of organization, by-laws, limited liability company agreement or other constituent documents, or (iii) any Debenture Document or any other note, instrument or agreement in connection with any other Subordinated Debt without the prior written consent of Agent; provided, however, that Borrowers may amend the Debenture Documents without the consent of the Agent to the extent expressly permitted by the Debenture Intercreditor Agreement.

(j)Capitalized Leases. The Borrowers, taken as a whole, shall not incur greater than $500,000 in additional Capitalized Lease Obligations after the date hereof; providedfurther, that such Capitalized Lease Obligations shall be (i) on terms and conditions consistent with current market conditions for equipment of that kind, and (ii) solely for the purchase and/or lease of new pieces of or as a replacement of existing equipment.

(k)Use of Proceeds. Borrowers shall not use the proceeds of the Term Loan for any purpose other than (i) consummating the Acquisition, and (ii) general working capital purposes.

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(l)BT Receivable. Borrowers shall not compromise or settle any dispute, provide a discount, write-off, or waive collection of any part of the BT Receivable without the prior written consent of the Agent.

9. Reporting and Information.

(a)Financial StatementsBorrowers will submit to Agent as soon as available, and in any case not later than thirty (30) days after the end of each month, a balance sheet and a detailed statement of profit and loss by business unit and a statement of cash flows, in each case prepared in accordance with GAAP on a consolidated (and, if requested by Agent, consolidating) basis, certified by the chief financial or accounting officer of Parent as presenting fairly, in accordance with GAAP, Borrowers’ financial condition as of the last day of such month and Borrowers’ results of operations for such month and for the portion of Borrowers’ fiscal year ending with such month. Borrowers will also submit to Agent annual financial statements within 120 days after the end of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders’ equity, and a statement of cash flows, in each case prepared in accordance with the requirements set forth on Item 23 of the Addendum on a consolidated (and, if requested by Agent, consolidating) basis. Borrowers will also submit to Agent annually at least 60 days prior to Borrowers’ fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement on a consolidated (and, if requested by Agent, consolidating) basis. Together with each monthly and annual financial statement, Borrowers will deliver to Agent the certification of the chief financial or accounting officer of Parent in the form of Exhibit B attached hereto to the effect that Borrowers are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if Borrowers are not in compliance, describing the nature of any noncompliance and the steps Borrowers are taking or propose to take to remedy the same. Borrowers shall, promptly, upon request, furnish such other information concerning the condition, operations, financial or otherwise, of any Borrower as the Agent may from time to time request.

(b)Collateral Reports. Borrowers shall deliver to Agent within fifteen (15) days after the end of each month a report, reflecting the status as of the end of each month or for the month then ended, as the case may be, and certified by the Chief Executive Officer or Chief Financial Officer of Parent as being true and correct in all material respects, containing (i) a current detailed aging, by total and by Customer, of Borrowers’ Accounts, (ii) a current detailed aging, by total and by vendor, of Borrowers’ accounts payable, (iii) a schedule detailing loans and intercompany transfers to Magenta from any other Borrower, and (iv) a true, correct and complete copy of each new material contract entered into by any Borrower for the sale, lease or other provision of goods or services by such Borrower and for the lease or purchase of circuit capacity by any Borrower, all of which shall be set forth in a form and shall contain such information as is reasonably acceptable to Agent. At Agent’s request, Borrowers shall deliver such information more or less often than described above and such other information with respect to the Collateral, Borrowers or Borrowers’ business or financial condition as Agent may reasonably request from time to time.

(c)Tax Returns. Borrowers shall provide Agent with a copy of all federal tax returns of each Borrower no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

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(d)SEC Filings. Borrowers shall provide Agent with a copy of all reports and other filings made by Borrowers with the Securities and Exchange Commission no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

(e)BT Receivable. Borrowers will submit to Agent, promptly, and in any case not later than (i) one (1) day following each receipt of a BT Receivable Payment and (ii) two (2) Business Days after the end of each month, a reconciliation and report showing any amounts collected with respect of the BT Receivable, the amount left uncollected and, any issues, disputes and offsets with respect to collection of the BT Receivable, and such additional information with respect thereto as requested by Agent.

(f)Monthly Recurring Circuit Revenue and Recurring Circuit Margin. Borrowers will submit to Agent, as soon as available, and in any case not later than thirty (30) days after the end of each month, a summary of Monthly Recurring Circuit Revenue and Recurring Circuit Margin for the Strategic Sourcing Business Unit.

(g)Other Information. Borrowers will notify Agent as promptly as possible of any Default, any receipt by any Borrower of notice from any governmental authority that any Borrower has or may have violated any law, rule or regulation applicable to any Borrower or the terms or conditions of any permit or license any Borrower holds or is required to hold in connection with the conduct of such Borrower’s business, any amendment to any Borrower’s constituent documents and any change in any Borrower’s senior management, and the commencement of any material litigation, claim or action by or against any Borrower.

10. Inspection Rights; Expenses; Etc.

(a)Field Examinations; Inspections. Agent and any of the Lenders, shall have the right without hindrance or delay to conduct field examinations to inspect the Collateral, all other assets of Borrowers or any portion thereof, Borrowers’ books and records and all other aspects of Borrowers’ business, and to examine and make copies of Borrowers’ records, the Collateral and all other assets of Borrowers or any portion thereof, in each case wherever located, and Agent and any of the Lenders may enter upon each Borrower’s premises for such purposes, without notice, during business hours. Borrowers will assist Agent and any of the Lenders in whatever way necessary to make each such examination, and Borrowers agree to pay for such examinations as more fully described on Item 24 of the Addendum. Agent and any of the Lenders may discuss each Borrower’s financial condition with Borrowers’ independent accountants without liability to Agent or any of the Lenders or such accountants. Agent and any of the Lenders shall have full access to all records available to Borrowers from any credit reporting service, bureau or similar service and shall have the right to examine and make copies of any such records. Agent and any of the Lenders may exhibit a copy of this Agreement to such service and such service shall be entitled to rely on the provisions hereof in providing access to Agent and any of the Lenders as provided herein.

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(b)Performance by Agent. Agent may, from time to time at Agent’s option, perform any agreement of any Borrower hereunder which such Borrower fails to perform and take any other action which Agent deems necessary for the maintenance or preservation of any of the Collateral or Agent’s interest therein, and Borrowers agree to reimburse Agent immediately on demand for all of Agent’s expenses in connection with the foregoing (including, without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense is incurred until reimbursed by Borrowers.

11.Rights of Setoff, Application of Payments, Etc. Agent and any of the Lenders will be entitled to hold or set off all sums and all other property of any Borrower at any time to any Borrower’s credit or in Agent’s or any Lender’s possession (or the possession of any of Agent’s or Lender’s Affiliates) by pledge or otherwise or upon or in which Agent or any of the Lenders may have a Lien, as security for any and all of the Obligations. Recourse to the Collateral or other security for the Obligations will not at any time be required and each Borrower hereby waives any right of marshalling that such Borrower may have. Each Borrower’s obligation to pay or repay the Obligations is unconditional. Borrowers agree that, while a Default exists, Agent or any of the Lenders may take such action with regard to the custody and collection of Accounts as Agent or any of the Lenders may deem necessary. Each Borrower agrees that failure to take any action with regard to any given Account will not be unreasonable until and unless Agent receives a written request for specific action from Borrowers’ Agent with regard thereto and fails to respond thereto within a commercially reasonable time. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any of the Lenders from or on behalf of any Borrower, and each Borrower hereby irrevocably agrees that Agent or any of the Lenders shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or any of the Lenders against the Obligations, in such manner and in such order as the Lenders may deem advisable.

12.Attorney-in-Fact. Each Borrower hereby appoints and constitutes Agent as such Borrower’s attorney-in-fact: (a) at any time, (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Agent’s possession and to deposit or otherwise collect the same; (ii) to send verifications of Accounts to Customers; and (iii) to execute in such Borrower’s name any financing statements, affidavits and notices with regard to any and all Lien rights; and (b) while any Default exists, (i) to receive, open, and dispose of all mail addressed to such Borrower; (ii) to notify the postal authorities to change the address and delivery of mail addressed to such Borrower to such address as Agent may designate; (iii) to sign such Borrower’s name on any invoice or bill of lading relating to the Collateral, on drafts against Customers, and notices to Customers; (iv) to sign any agreement or certificate in connection with any insurance policy of any Borrower (including all documentation to receive benefit payments thereunder and to cancel such insurance policy and receive a refund of the unearned premium with respect thereto); and (v) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Agent has any commitment to Borrowers under this Agreement or otherwise (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and other than inchoate indemnification obligations and obligations under the warrant and the registration rights agreement).

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13. Defaults and Remedies.

(a)Defaults. For purposes of this Agreement, “Default” means the occurrence of any of the following events: (i) non-payment when due of any amount payable on any of the Obligations (in the case of non-payment of interest only, including, but not limited to any non-payment of PIK Interest pursuant to Section 3(b), if such non-payment continues one (1) Business Day after the date when due and for the avoidance of doubt, the default margin identified on Item 4 of the Addendum shall be applicable during the non-payment period); (ii) breach of any covenant or failure to perform any agreement or failure to meet any of any Credit Party’s obligations contained herein, in any other Loan Document or in any agreement out of which any of the Obligations arose if such failure continues for five (5) Business Days (excluding Sections 8, 9, 7(f), and 7(k), where no cure period shall be applicable); (iii) any statement, representation, or warranty made in writing in this Agreement, in any other Loan Document or in any other writing or statement at any time furnished or made or deemed furnished or made by any Credit Party to Agent proves to have been untrue in any material respect as of the date furnished or made or deemed furnished or made; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debenture Documents, or any Borrower’s default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 25 of the Addendum (after giving effect to any applicable notice and cure period); (v) suspension of the operation of any Borrower’s present business; (vi) any Borrower becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against any Borrower; (vii) entry of any judgment in excess of the amount set forth on Item 26 of the Addendum against any Borrower or creation, assertion, or filing of any judgment or tax Lien against the property of any Borrower, in each case which remains undischarged for thirty (30) days after such entry or filing; (viii) death or withdrawal of any partner of any Borrower which is a partnership, or dissolution, merger, or consolidation of any Borrower which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any Borrower; (x) sale, transfer or exchange, either directly or indirectly, of a controlling Stock interest of any Credit Party (without limiting the generality of the foregoing, a Default shall exist if (A) Parent shall cease to own, directly or indirectly, 100% of the Stock of any other Borrower or cease to have direct or indirect voting control of any other Borrower (excluding Vanco until the Final Closing), (B) any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty-five percent (25%) of the voting power of all classes of stock of Parent; (xi) appointment of a receiver for any of the Collateral or for any other property in which any Credit Party has an interest; (xii) seizure of any Collateral by any Person other than Agent; (xiii) any person identified on Item 27 of the Addendum shall for any reason cease to hold the office of the applicable Borrower set forth opposite such person’s name on Item 27 of the Addendum (or any such person shall cease to perform the duties generally associated with such office) and a replacement reasonably satisfactory to Agent shall not be appointed within 90 days; (xiv) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a Material Adverse Effect; (xv) payment by any Borrower on the Debenture Indebtedness or any other Subordinated Debt in violation of the Debenture Intercreditor Agreement or any other applicable subordination agreement; (xvi) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any Borrower’s employee pension benefit plans; (xvii) any event of default shall occur under (after giving effect to any applicable notice and cure period) under the Acquisition Documents (other than a termination of the Management Agreement as a result of the Final Closing); (xviii) the Final Closing shall have not occurred by ninety-one (91) days from the Agreement Date; or (xix) except for Transfer Applications (as such term is defined in the Interest Purchase Agreement) to be approved by the applicable regulatory authorities in California, Pennsylvania and Tennessee (which such Transfer Applications shall in any event be approved within one hundred twenty (120) days), any Transfer Application shall not have been approved by the earliest to occur of (A) expiration of the STA Requests unless replaced by a permanent authorization and (B) ninety (90) days from the date of this Agreement.

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(b)Remedies. If a Default occurs and is continuing, in each case without demand or notice to any Borrower, any other Credit Party or any other Person (unless such notice is expressly required hereunder or under applicable law), the Required Lenders may authorize and instruct the Agent to do any one of the following on behalf of the Lenders, all of which such actions are, subject to any applicable law to the extent any such law may not be waived, permitted under this Agreement:

(i)declare the entire principal amount of the Term Loan outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

(ii)notify Customers that the Accounts have been assigned to Agent and that Agent has a security interest therein, collect them directly, and charge the collection costs and expenses to Borrowers’ loan account.

(iii)exercise any right or remedy available to any Borrower under one or more contracts of such Borrower and sell or otherwise dispose of any such contract.

(iv)(A) exercise any of its remedies under any other Loan Document, (B) apply any cash collateral to the Obligations (without limiting the foregoing, Agent may instruct any bank or other financial institution holding any cash, certificate of deposit or other Collateral to pay over such Collateral to Agent), and (C) draw on any letter of credit issued for the benefit of Agent in connection with this Agreement or any other Loan Document and apply the proceeds thereof to the Obligations.

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(v)make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral. Borrowers authorize Agent or any of the Lenders to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any Lien which in Agent’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

(vi)ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

(vii)without regard to any waste, adequacy of the security or solvency of any Borrower, apply for the appointment of a receiver of the Collateral, to which appointment each Borrower hereby consents, whether or not foreclosure or repossession proceedings have been commenced hereunder or under any other Loan Document and whether or not a foreclosure sale or secured party sale has occurred.

(viii)cancel any insurance policy of any Borrower in exchange for a refund of the unearned premium with respect thereto, and each Borrower hereby authorizes any insurance company which has issued any such policy to make such payment directly to Agent for application to the Obligations;

(ix)exercise any of the remedies available to Agent as a secured party under the UCC as in effect in any applicable jurisdiction, or otherwise available to Agent under applicable law. Borrowers agree, upon demand by Agent or any of the Lenders, while a Default exists, to cease the sale or other disposition of the Collateral, except with Agent’s prior written consent, and to assemble at Borrowers’ expense all the Collateral at a convenient place acceptable to Agent. Agent may charge to Borrowers’ loan account and Borrowers will pay Agent upon demand all costs and expenses, including reasonable attorneys’ fees (including fees of attorneys that are regular salaried employees of Agent or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment, compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Agent or against any Borrower concerning any matter growing out of or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Agent pays any state, city, local, federal, or other tax or levy attributable to the Collateral (excluding taxes on income realized by Agent), Borrowers will repay to Agent the amount of tax so paid by Agent. Borrowers agree that Agent may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by Liens prior to Agent’s security interest. Borrowers will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Agent or any of the Lenders.

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(c)Notices. If any notice of intended disposition of the Collateral or of any other act by Agent is required by law or court order and a specific time period is not stated therein, such notice, if given five (5) Business Days before such disposition or act, in accordance with the provisions of Section 16(a), will be deemed reasonably and properly given.

(d)License. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and each Borrower agrees that all of its rights under all licenses and all franchise agreements shall inure to Agent’s benefit.

(e)Remedies Cumulative. Agent’s and any Lender’s rights and remedies under this Agreement and all other Loan Documents shall be cumulative. Agent and any of the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Agent or any of the Lenders of one right or remedy shall be deemed an election, and no waiver by Agent or any of the Lenders of any default on Borrowers’ part shall be deemed a continuing waiver. No delay by Agent or any of the Lenders shall constitute a waiver, election or acquiescence by it.

14. Agent.

(a)Appointment. Each Lender hereby irrevocably appoints and authorizes the Agent to perform the duties of the Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Term Loan outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to the Agent, and, subject to Section 2 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agent shall not have any liability to the Lenders for the Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Term Loan, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Term Loan and Agent Advances, for the Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Credit Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by the Agent of the rights and remedies specifically authorized to be exercised by the Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 14(c) of this Agreement, to take such action as the Agent deems appropriate on its behalf to administer the Term Loan and the Loan Documents and to exercise such other powers delegated to the Agent by the terms hereof or the other Loan Documents (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Term Loan), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of the Term Loan; provided, however, that the Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law.

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(b)Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the making and the continuance of the Term Loan hereunder and shall make its own appraisal of the creditworthiness of the Credit Parties and the value of the Collateral, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Term Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, the Agent shall provide to such Lender any documents or reports delivered to the Agent by the Credit Parties pursuant to the terms of this Agreement or any other Loan Document. If the Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender any time that the Required Lenders have instructed the Agent to act or refrain from acting pursuant hereto.

(c)Rights, Exculpation, Etc.The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agent (i) may treat the payee of the Term Loan as the owner thereof until the Agent receives written notice of the assignment or transfer thereof, pursuant to Section 16(f) hereof, signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including, without limitation, counsel to the Agent or counsel to the Credit Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counselor experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the Agent's Lien thereon, or any certificate prepared by any Borrower in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The Agent shall not be liable for any apportionment or distribution of payments made in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders.

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(d)Reliance.The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

(e)Indemnification. To the extent that the Agent is hot reimbursed and indemnified by any Credit Party, the Lenders will reimburse and indemnify the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including, without limitation, advances and disbursements made pursuant to Section 14(h); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from the Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 14(e) shall survive the payment in full of the Term Loan and the termination of this Agreement.

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(f)Agent Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of the Term Loan. The terms “Lenders” or “Required Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Required Lenders. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers as if it were not acting as the Agent pursuant hereto without any duty to account to the other Lenders.

(g)Successor Agent.

(i) The Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at least 30 Business Days' prior written notice to the Borrowers and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below.

(ii) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Agent, and the Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After the Agent's resignation hereunder as the Agent, the provisions of this Paragraph 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the other Loan Documents.

(iii) If a successor Agent shall not have been so appointed within said 30 Business Day period, the Agent shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above

(h)Collateral Matters.

(i) The Agent may from time to time make such disbursements and advances (“Agent Advances”) which the Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Term Loan and other Obligations or to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 16(j). The Agent Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate of interest then applicable to the Term Loan. The Agent Advances shall constitute Obligations hereunder. The Agent shall notify each Lender and the Borrowers in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation to its obligations pursuant to Section 14(e), each Lender agrees that it shall make available to the Agent, upon the Agent's demand, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to the Agent by such Lender, the Agent shall be entitled to recover such funds on demand from such Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Agent at the Default Rate.

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(ii) The Lenders hereby irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral upon termination of the Total Commitment and payment and satisfaction of the Term Loan and all other Obligations which have matured and which the Agent has been notified in writing are then due and payable; or constituting property being sold or disposed of in the ordinary course of Borrower's or any of its Subsidiaries' business or otherwise in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which neither Borrowers nor any of their Subsidiaries owned any interest at the time the Lien was granted or any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 14(h)(i).

(iii) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 14(h(ii)), each Lender agrees to confirm in writing, upon request by the Agent, the authority to release Collateral conferred upon the Agent under Section 14(h)(ii). Upon receipt by the Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Credit Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent and the Lenders upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Credit Party in respect of) all interests in the Collateral retained by Borrowers or any of their Subsidiaries.

(iv) The Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Credit Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent in this Section 14(h) or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein.

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(i)Agency for Perfection. Each Lender hereby appoints the Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and the Agent and each Lender hereby acknowledges that it holds possession of or otherwise controls any such Collateral for the benefit of the Agent and the Lenders as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. In addition, the Agent shall also have the power and authority hereunder to appoint such other sub-agents as may be necessary or required under applicable state law or otherwise to perform its duties and enforce its rights with respect to the Collateral and under the Loan Documents. Borrowers by their execution and delivery of this Agreement hereby consents to the foregoing.

15.Indemnification.

(a)Borrowers jointly and severally agree to defend, indemnify, and hold harmless Agent and Agent’s and any of the Lender’s participants, directors, officers, employees, Affiliates, representatives, attorneys and agents (each an “Indemnified Person”) from and against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or threatened release of any hazardous materials in connection with any Borrower’s business on, at or from any property at any time owned or operated by any Borrower, including, without limitation, reasonable attorneys’ and consultants’ fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. Without limiting the foregoing and for purposes other than Capstone Investments, Borrowers represent and warrant that there has been no loan broker or investment banker involved in connection with the transactions contemplated hereby, and Borrowers agree to indemnify and hold Agent and any of the Lenders and their participants harmless from any claim of compensation payable to any loan broker or investment banker in connection with the transactions contemplated hereby.

(b)All payments by any Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any and all taxes other than income taxes imposed on Agent or any of the Lenders (“Indemnified Taxes”), unless such Taxes are required by law or the administration thereof to be withheld or deducted. If any Borrower, Agent or Lender or any participant is required by applicable law to deduct or pay any Indemnified Taxes in respect of any payment by or on account of any obligation of a Borrower hereunder or under any other Loan Document, then, if requested by Agent, any Lender or any participant, the sum payable shall be increased by that Borrower by such amount as is necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section), Agent and any of the Lenders and their participants receive an amount equal to the sum Agent and any of the Lenders and such participants would have received had no such deductions or payments been required.

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(c)Borrowers shall indemnify Agent, the Lenders and their participants, within 5 days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, any of the Lenders and their participants and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrowers’ Agent by Agent or any participant shall be conclusive absent manifest error.

(d)As soon as practicable after any payment of Indemnified Taxes by a Borrower to a governmental authority, Borrowers’ Agent shall deliver to Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

16.General Provisions.

(a)Notices. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile transmission, upon transmittal if confirmed by the sender’s facsimile device; provided that in the case of notices to Agent, Agent will be charged with knowledge of the contents thereof only when such notice is actually received by Agent. A telephonic notice to Agent as understood by Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. Notices to Agent or Borrowers will be sent to the addresses set forth on Item 28 of the Addendum, or any other address for Borrowers or Agent of which the other is notified by like notice.

(b)Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Term Loan payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the Term Loan payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Term Loan that is required for the Lenders or any of them to take any action hereunder, (iv) amend the definition of “Required Lenders” or “Pro Rata Share”, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents) or subordinate any Lien granted in favor of the Agent for the benefit of the Lenders (except as otherwise provided in this Agreement and the other Loan Documents), or release the Borrower or (vi) amend, modify or waive this Section 16(b) of this Agreement, in each case, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents.

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(c)No Waiver. No waiver hereunder will be valid unless in writing signed by Required Lenders (or by Agent at the request of the Required Lenders) and then only to the extent therein stated. No delay or failure on Agent’s or any Lender’s part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Agent’s or any Lender’s right to exercise any other right or remedy.

(d)Time of Essence. Time is of the essence of this Agreement.

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

(f)Assignments and Participations.

(i) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Credit Party and the Agent and each Lender and their respective successors and assigns; provided, however, that none of the Credit Parties may assign or transfer any of its rights hereunder without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void.

(ii) Each Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Term Loan made by it); provided, however, that (A) such assignment is in an amount which is at least $500,000 or a multiple of $100,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $500,000 or a multiple of $100,000 in excess thereof), (B) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, and such parties shall deliver to the Agent a processing and recordation fee of $5,000 (except the payment of such fee shall not be required in connection with an assignment by a Lender to an Affiliate of such Lender or Related Fund of such Lender), and (C) no written consent of the Agent shall be required in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Agent (or such shorter period as shall be agreed to by the Agent and the parties to such assignment), (1) the assignee thereunder shall become a “Lender” hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (2) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything contained to the contrary in this Section 16(f)(ii), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agent; provided, that (x) the Borrowers and the Agent may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned until such Lender and its assignee shall have executed and delivered an Assignment and Acceptance to the Agent for recordation and (y) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agent or any other Person shall not affect the legality, validity or binding effect of such assignment.

45

(iii) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (A) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (B) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any of its Subsidiaries or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (C) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (D) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (E) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (F) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(iv) The Agent shall, on behalf of the Borrowers, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Term Loan (the “Registered Loans”) owing to each Lender from time to time. Other than in connection with an assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender shall maintain a register comparable to the Register.

46

(v) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any promissory notes subject to such assignment, the Agent shall, if the Agent consents to such assignment and if such Assignment and Acceptance has been completed (A) accept such Assignment and Acceptance and (B) record the information contained therein in the Register.

(vi)A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register) (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register), together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same) on the Register, the Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.

(vii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the “Participant Register”). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(viii) Any foreign Person who purchases or is assigned or participates in any portion of such Registered Loan shall comply with Section 2(o).

(ix) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Term Loan made by it); provided, that (A) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (C) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (1) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Term Loan, (2) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Term Loan or the fees payable under this Agreement, or (3) actions directly effecting a release of all or a substantial portion of the Collateral or any Credit Party (except as set forth in Section 14(h) of this Agreement or any other Loan Document).

47

(g)Governing Law; Submission to Jurisdiction, Service, Etc. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States Federal Court sitting in New York, New York or any New York state court sitting in New York, New York in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents, and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Each Borrower waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Parent at Borrowers’ address for notices pursuant to this Agreement, and service so made shall be deemed to be completed with respect to all Borrowers five (5) days after the same shall have been so deposited in the United States mails. Nothing herein shall limit the right of Agent or any of the Lenders to bring proceedings against any Borrower or any Affiliate of any Borrower in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent or any of the Lenders or any other holder of any Obligations, or any Affiliate of Agent or any of the Lenders or any other holder of any Obligations, involving, directly or indirectly, any matter in any way arising out of, related to or connected with any Loan Document shall be brought only in a United States Federal Court or New York state court sitting in New York, New York. Nothing in this Agreement shall be deemed or operate to affect the right of Agent or any of the Lenders to serve legal process in any other manner permitted by law or to preclude the enforcement by Agent or any of the Lenders of any judgment or order obtained in such forum or the taking of any action under this Agreement or any other Loan Document to enforce same in any other appropriate forum or jurisdiction.

(h)Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS, EACH LENDER AND AGENT HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. EACH BORROWER, EACH LENDER AND Agent ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

48

(i)Waiver of Hearing. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING AGENT, ANY OF THE LENDERS, THEIR SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH Agent OR ANY OF THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT, IF Agent OR ANY OF THE LENDERS FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW.

(j)Expenses. Borrowers shall pay on demand all of Agent’s and any of the Lender’s costs and expenses in connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of this Agreement, including the reasonable fees and out-of-pocket expenses of Agent’s and any of the Lender’s counsel, in each case whether incurred on, prior or subsequent to the Agreement Date. In addition, Borrowers shall pay any and all stamp and other taxes and recording and filing fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. All provisions in this Agreement providing for the payment or reimbursement of Agent’s or any of the Lender’s attorneys’ fees and expenses include, without limitation, such fees and expenses incurred pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code.

(k)Execution in Counterparts; Execution by Fax or E-Mail; Waiver of Acceptance. This Agreement may be executed in separate counterparts, all of which shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail shall be equally as effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Any party delivering an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail also shall deliver an original executed counterpart of this Agreement or such other Loan Document, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement or such other Loan Document. To the fullest extent permitted by applicable law, each Borrower waives notice of Agent’s and any of the Lender’s acceptance of this Agreement and the other Loan Documents.

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(l)No Third-Party Beneficiaries. Except as expressly set forth herein, neither (i) any stockholder or owner of any other equity interest in any Borrower, (ii) any of Borrower’s employees or creditors (other than Agent and any of the Lenders and their Affiliates), nor (iii) any other Person claiming by or through any Borrower shall be entitled to rely on this Agreement or have any rights, remedies or claims against Agent or any of the Lenders or any Affiliates of them under or in connection with this Agreement.

(m)Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Agent, the Lenders and Borrowers and supersede all prior agreements and understandings relating to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

50

IN WITNESS WHEREOF, the undersigned have executed this Term Loan and Security Agreement as of the day and year first above written.

Borrowers:

CAPITAL GROWTH SYSTEMS, INC.

By:

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:

Name:

Title:

CENTREPATH, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:

Name:

Title:

FNS 2007, INC.

By:

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL CAPACITY DIRECT, LLC

By:

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:

Name:

Title:

52

Agent and Lender:

ACF CGS, L.L.C.

By:

Name:

Title:

EX-10.9 10 v132473_ex10-9.htm

SECURED TERM LOAN PROMISSORY NOTE

$8,500,000 November __, 2008 Chicago, Illinois

FOR VALUE RECEIVED, the undersigned, CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein collectively as the “Borrowers”), jointly and severally promise to pay to the order of ACF CGS, L.L.C., a Delaware limited liability company as administrative agent (the “Agent”), at the office of the Agent located at 570 Lexington Avenue, 40^th Floor New York, NY 10022 or such other office as the holder hereof may from time to time designate in writing, in lawful money of the United States of America and in immediate available funds, the principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), together with interest from and after the date hereof on the unpaid principal balance outstanding at a variable rate per annum as set forth in the Term Loan and Security Agreement dated as of even date herewith, between Agent, Borrowers and Lender and the other lenders from time to time party thereto (as amended from time to time, the “Term Loan Agreement”).

This Secured Term Loan Promissory Note (the “Note”) is issued pursuant to the Term Loan Agreement and is entitled to all of the benefits and security of the Term Loan Agreement. All of the terms, covenants and conditions of the Term Loan Agreement and the Loan Documents (as defined in the Term Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Term Loan Agreement.

The rate of interest in effect hereunder shall be calculated with reference to the Section 3, in the Term Loan Agreement. The interest due hereunder shall be computed in the manner provided in the Term Loan Agreement.

The principal and accrued interest on this Note shall be due and payable on the dates and in the manner set forth in the Term Loan Agreement.

Notwithstanding the forgoing, the entire unpaid principal balance and any accrued interest on this Note shall be due and payable immediately upon any acceleration of the indebtedness evidenced by this Note by the Lender pursuant to the Term Loan Agreement or upon any termination of the Term Loan Agreement.

This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2(c) of the Term Loan Agreement. Borrowers may also prepay this Note, in whole or in part, in the manner provided in Section 2(d)of the Term Loan Agreement.

Upon the occurrence of an Default, the Agent and the Lenders shall have all rights and remedies set forth in Section 13 of the Term Loan Agreement and the other Loan Documents.

Time is of the essence with respect to payments due under this Note. To the fullest extent permitted by applicable law, the Borrowers and every endorser and guarantor (if any) of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Agent or any of the Lenders in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Agent or any of the Lenders of any right or remedy preclude any other right or remedy. Agent or any of the Lenders, at their option, may enforce their rights against any collateral securing this Note without enforcing their rights against the Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrowers. The Borrowers agree that, without releasing or impairing Borrowers’ liability hereunder, Agent, for the benefit of the Lenders may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note.

THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESSES SPECIFIED IN ITEM 28 OF THE ADDENDUM TO THE TERM LOAN AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

2

IN WITNESS WHEREOF, the undersigned have executed this Note to be duly executed and delivered by an officer thereunto duly authorized as of the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:  

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:  

Name:

Title:

CENTREPATH, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:  

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:  

Name:

Title:

3

FNS 2007, INC.

By:  

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:  

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL

CAPACITY DIRECT, LLC

By:  

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:  

Name:

Title:

EX-10.10 11 v132473_ex10-10.htm

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (OR SUCCESSOR RULE THERETO) OR (III) UNLESS THE SALE, ASSIGNMENT OR TRANSFER MEETS THE REQUIREMENT OF REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

CAPITAL GROWTH SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:[_____]	Number of Shares: 12,000,000
	Date of Issuance:November ___, 2008

Capital Growth Systems, Inc., a Florida corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ACF CGS, L.L.C., a Delaware limited liability company, the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Twelve Million (12,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the "Warrant Shares") at the Warrant Exercise Price (as defined in Section 1(b) below. Notwithstanding anything to the contrary contained herein, prior to the “Amendment Date” as defined below, this Warrant shall only be exercisable into that number of Warrant Shares that are authorized and reserved for issuance hereunder. For purposes hereof, the “Amendment Date” shall be the first date after the date of this Warrant that the Company files articles of amendment to its articles of incorporation (the “Amendment”) with the Florida Secretary of State increasing its authorized Common Stock to an amount no less than 600,000,000 shares (before giving effect to any forward or reverse split that may occur on or before the date of such filing).

SECTION 1

(a)Loan and Security Agreement. This Warrant was issued pursuant to that certain Loan and Security Agreement, dated as of November__, 2008, by and among the Company, Global Capacity Group, Inc., a Texas corporation (“GCG”), Centrepath, Inc., a Delaware corporation (“Centrepath”), 20/20 Technologies, Inc., a Delaware corporation (“20/20 Inc.”), 20/20 Technologies I, LLC, a Delaware limited liability company (“20/20 LLC”), Nexvu Technologies, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), Magenta Netlogic Limited, a United Kingdom corporation (“Magenta”), Capital Growth Acquisition, Inc., a Delaware corporation (“CG Acquisition”), and Holder (as such agreement may be amended from time to time as provided in such agreement, the "Loan Agreement").

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i)“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which banks in New York, New York are otherwise closed for transacting business with the public.

(ii)"Common Stock" means (i) the Company's common stock, $0.0001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(iii)"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)"Expiration Date" means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(v)"Option" means any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(vi)"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

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(vii)"Principal Market" means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.

(viii)"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Holder, as such agreement may be amended, restated or modified and in effect from time to time.

(ix)"Securities Act" means the Securities Act of 1933, as amended.

(x)"Trading Day" means any day on which the Common Stock is traded on the Principal Market; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(xi)"Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xii)"Warrant Exercise Price" shall be equal to, with respect to any Warrant Share, $0.24, subject to adjustment as hereinafter provided.

(xiii)"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) ("Bloomberg") through its "Volume at Price" functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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SECTION 2. EXERCISE OF WARRANT

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of the Holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the second (2nd) Business Day (the "Warrant Share Delivery Date") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the "Exercise Delivery Documents"), (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC as they would relate to this Warrant, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the "Deemed Issuance Date"), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder's Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder. The Company shall cause at its sole and exclusive expense the investment banking firm to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm's determination or calculation, as the case may be, shall be deemed conclusive absent error.

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(b)If this Warrant is submitted for exercise, as may be required by Section 2(f), and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the "Warrant Delivery Date") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Loan Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall: (i) cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a); or (ii) cash damages accrue in the aggregate to an amount exceeding twelve percent (12%) of the product of the number of shares of Common Stock subject to this Warrant and the original Exercise Price for the Common Stock subject to this Warrant. Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Loan Agreement), 110% of the amount that (A) the Holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.

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(e)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

  B

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being exercised;

B = the arithmetic average of the Weighted Average Price of the Common Stock on each of the five (5) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(f)Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:

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ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

SECTION 3. COVENANTS AS TO COMMON STOCK

The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant; provided, however, that the Company shall effect the Amendment no later than 180 days following the date of this Warrant. Should the Company fail to effect the Amendment within such time period, then the number of shares to be purchased under this warrant shall be increased by 2% for each 30 day period thereafter that the Company fails to effect the Amendment.

(d)If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such securities exchange, or quotation system or market.

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(e)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.0001 per share, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets.

SECTION 4. TAXES

The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

SECTION 5. WARRANT HOLDER NOT DEEMED A SHAREHOLDER

No Holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

SECTION 6. REPRESENTATIONS OF HOLDER

The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.

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SECTION 7. OWNERSHIP AND TRANSFER

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement to the extent provided therein and the initial Holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement.

SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Warrant Date (as defined in Section 12), the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company), for a consideration per share less than a price (the "Applicable Price") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share; provided however, no such adjustment shall be made to the Warrant Exercise Price as a result of any "Exempted Issuance." For purposes hereof, "Exempted Issuance" means any issuance or deemed issuance of shares of Common Stock: (i) pursuant to an Approved Stock Plan, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed the greater of one percent (1.0%) of the number of outstanding shares of Common Stock at the end of the immediately preceding calendar year or the number of shares currently authorized for issuance pursuant to the Company’s 2008 Long Term Incentive Plan; or (ii) that is deemed to constitute an “Exempt Issuance” as that term is defined in the form of Securities Purchase Agreement dated on or about the date of this Warrant calling for the purchase of up to $10,500,000 of convertible debentures with warrants (the proceeds of which are to be used in part for the purchase of the limited liability company interests (“LLC Interests”) of Vanco Direct USA, LLC (the “Sub Debt Purchase Agreement”); (iii) the issuance of the securities subject to the Sub Debt Purchase Agreement or the issuance of securities with respect to a convertible note for up to $4,000,000 that may be issued to the seller of the LLC Interests to the Company; or (iv) that is pursuant to an “Excluded Transaction.” For purposes hereof, the term "Approved Stock Plan" means any employee benefit plan that has been approved by the Board of Directors and stockholders of the Company, pursuant to which shares of Common Stock may be issued solely to consultants, employees, officers and/or directors for services provided to the Company or any of its Subsidiaries (and not, for the avoidance of doubt, for equity capital raising purposes). For purposes hereof, an "Excluded Transaction" shall be any issuance of equity securities of the Company (or warrants, options, convertible rights or other rights to acquire equity securities): (A) to a provider of goods or services to the Company, in connection with an acquisition of a business or assets; or (B) in connection with the outstanding rights of any holder of an option, warrant or convertible security that is issued and outstanding on or before the date of this Warrant; provided that such option, warrant or convertible security is not amended or adjusted after the date of this Warrant to increase the number of securities into which it is convertible, exchangeable or exercisable or to decrease the exercise, exchange or conversion price. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

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(b)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price other than pursuant to an Excluded Transaction or Exempted Issuance), the following shall be applicable:

(i)Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

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(ii)Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed after the date of issuance of this Warrant in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at least as of any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price), the following shall be applicable:

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(i)Calculation of Consideration Received. In case any Options are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the Black-Scholes Value (as defined below) of such Options (the greatest of (I), (II) and (III), the "Option Consideration") and, for purposes of applying the provisions of this Section 8, the Option Consideration shall be allocated pro rata among all the shares of Common Stock issuable upon exercise of such Options to determine the consideration per each such share of Common Stock and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Common Stock represented thereby), less the Option Consideration. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

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(iii)Black-Scholes Value. The "Black-Scholes Value" of any Options shall mean the sum of the amounts resulting from applying the Black-Scholes pricing model to each such Option, which calculation is made with the following inputs: (i) the "option striking price" being equal to the lowest exercise price possible under the terms of such Option on the date of the issuance of such Option (the "Valuation Date"), (ii) the "interest rate" being equal to the Federal Reserve US H.15 T Note Treasury Constant Maturity 1 Year rate on the Valuation Date (as reported by Bloomberg through its "ALLX H15T" function (accessed by typing "ALLX H15T" [GO] on a Bloomberg terminal, and inserting the date of the Valuation Date and then looking at the row entitled "Treas Const Mat 1 Year" under the column entitled "Previous Value")), or if such rate is not available then such other similar rate as mutually agreed to by the Company and the Holder, (iii) the "time until option expiration" being the time from the Valuation Date until the expiration date of such Option, (iv) the "current stock price" being equal to the Weighted Average Price of the Common Stock on the Valuation Date, (v) the "volatility" being the 100-day historical volatility of the Common Stock as of the Valuation Date (as reported by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to zero. Within three (3) Business Days after the Valuation Date, each of the Company and the Holder shall deliver to the other a written calculation of its determination of the Black-Scholes Value of the Options. If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes Value of the Options within five (5) Business Days of the Valuation Date, then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Valuation Date. The Company shall cause such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after the Valuation Date. Such investment banking firm's calculation of the Black-Scholes Value of the Options shall be deemed conclusive absent error. The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

(d)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case:

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(i)the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the Holder shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the amount of the assets that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

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(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE

(a)In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder, without regard to any limitation on exercise thereof) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

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SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT

If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

SECTION 11. NOTICE

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company: Capital Growth Systems, Inc.

500 W. Madison - Suite 2060

Chicago, Illinois 60661

Attention: Chief Executive Officer

Facsimile: (312) 673-2422

with a copy to: Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Attention: Mitchell D. Goldsmith

Facsimile: (312) 527-3194

If to Holder: ACF CGS, L.L.C.

c/o Archer Capital Management

570 Lexington Avenue - 40^th Floor

NY, NY 10022

Attention: Gary Katz

Facsimile: 212-319-1033

With a copy to: Jeffrey H. Wolf, Esq.

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Facsimile No.: (310) 310-6001

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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SECTION 12. DATE

The date of issuance of this Warrant is the date first set forth above (the "Warrant Date"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

SECTION 13. AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW

The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York.

SECTION 15. RULES OF CONSTRUCTION

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) each accounting term not otherwise defined in this Warrant has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word "including" in this Warrant shall be by way of example rather than limitation.

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SECTION 16. NO EFFECT UPON LENDING RELATIONSHIP

Anything herein contained to the contrary notwithstanding, nothing contained in this Warrant shall affect, limit or impair the rights and remedies of Holder, any of its affiliates, or its successors and transferees, or any other lender in their respective capacities as lenders to the Company or any of its Subsidiaries (each, a "Subject Person") pursuant to any agreement under which the Company or any of its subsidiaries has borrowed money. Without limiting the generality of the foregoing, no Subject Person, in exercising its rights as a lender, shall have any duty to consider (i) its status as a direct or indirect shareholder or other equityholder of the Company, (ii) the interests of the Company or any of its subsidiaries, or (iii) any duty it may have to any other direct or indirect shareholder or other equityholder of the Company, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of __________, 2008.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THIS WARRANT

CAPITAL GROWTH SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.Form of Warrant Exercise Price. The holder intends that payment of the Warrant Exercise Price shall be made as:

____________a "Cash Exercise" with respect to ___________________ Warrant

Shares; and/or

____________a "Cashless Exercise" with respect to ______________ Warrant

Shares (to the extent permitted by the terms of the Warrant).

2.Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number (if electronic book entry transfer):

Date:

 Name of Registered Holder

 By:

 Name:

 Title:

A-1

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock & Transfer Company or the currently existing transfer agent if other than such entity ("Transfer Agent") to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by Transfer Agent.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Capital Growth Systems, Inc., a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated: ____________________, 200___

 Name:

 Title:

B-1

EX-10.11 12 v132473_ex10-11.htm

Exhibit 10.11

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November ____, 2008 between Capital Growth Systems, Inc., a Florida corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

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

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

ARTICLE I.

DEFINITIONS

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

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

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

“Administrator” means Vanco plc (in administration).

“Administrator Debenture” means the debenture in the form of Exhibit A-1 hereto, issuable to the administrator pursuant to the terms of the ILPA (as defined below) in the original principal amount of $3,000,000.

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

“Archer Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and the Archer Purchasers in the form of Exhibit H-1 attached hereto

“Archer Purchasers” means the purchasers of the securities issued pursuant to the Loan and Security Agreement dated as of the date hereof by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Loan Agreement”).

“Authorized Share Approval” means (i) the vote by the stockholders of the Company to approve an amendment to the Company’s articles or certificate of incorporation that increases the number of authorized shares of Common Stock to at least 600,000,000 shares of Common Stock (the “Amendment”) and (ii) the filing by the Company of the Amendment with the Secretary of State of the State of Florida and the acceptance of the Amendment by the Secretary of State of the State of Florida.

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

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

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

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

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

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

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

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

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

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

“Debentures” means the Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

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

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

“Effective Date” means the earlier of (a) the effective date of a Registration Statement and (b) the date that all of Underlying Shares issuable pursuant to the Transaction Documents may be sold or are eligible for sale under Rule 144, without volume or manner-of-sale restrictions.

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

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

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

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“FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

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

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

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

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

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

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

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

“March Purchasers Intercreditor Agreement” means the intercreditor agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and each of the March Purchasers in the form of Exhibit H-2 attached hereto

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds or, with respect to (i) Aequitas Catalyst Fund, LLC - Series C (“Aequitas”), through the conversion of its bridge note dated September 29, 2008, in the original principal amount of $500,000 (the “Aequitas Note”) to a debenture and warrant hereunder and (ii) Capstone Investments (“Capstone”), through the irrevocable waiver of its right to all or a portion of its cash fee of 7% of the cash proceeds hereunder and under the Archer Loan Agreement.

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

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

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

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

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

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

6

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

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

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

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

“Voting Agreement” means the written agreement, in the form of Exhibit G attached hereto, of all of the officers, directors, and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favor of the Authorized Share Approval, amounting to, in the aggregate, at least 50.1% of the issued and outstanding Common Stock.

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

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

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

ARTICLE II.

PURCHASE AND SALE

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to $17,325,000, in the aggregate, in principal amount of the Debentures (with an aggregate Subscription Amount of up to $10,500,000). Each Purchaser shall deliver to the Company via wire transfer or a certified check, immediately available funds equal to its cash Subscription Amount (and, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement) and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the parties shall mutually agree.

2.2Deliveries.

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

(i) this Agreement duly executed by the Company;

(ii)a legal opinion of Company Counsel, in substantially the form of Exhibit D attached hereto;

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

(iv)the Voting Agreements, duly executed by all officers, directors and 10% stockholders of the Company;

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

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(vi)the Security Agreement, duly executed by the Company, VDUL (as defined below) and each Subsidiary, along with all of the Security Documents (including, without limitation, documents and agreements evidencing the Purchasers’ security interest in the assets of the Company’s Subsidiary that is organized in the UK), including the Subsidiary Guarantee, duly executed by the parties thereto;

(vii)the Archer Intercreditor Agreement, duly executed by the Company and the Archer Purchasers; and

(viii)the March Purchasers Intercreditor Agreement, duly executed by the Company and each of the March Purchasers.

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

(i) this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s cash Subscription Amount by wire transfer to the account as specified in writing by the Company (or, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement);

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

(iv)the Archer Intercreditor Agreement duly executed by such Purchaser; and

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

2.3Closing Conditions.

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

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

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

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

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

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

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

(iii)the delivery of a lock-up agreement, in the form attached hereto as Exhibit J, duly executed by each of the Administrator and Capstone, the Company and the Transfer Agent;

(iv)all existing debtholders of the Company and its Subsidiaries, with the exception of the Excepted Debtholders, as that term is defined herein (each, an “Existing Debtholder” and together, the “Existing Debtholders”), shall each have executed and delivered to the Purchasers an agreement whereby each Existing Debtholder shall agree, that all amounts owed to it shall not mature or require payments of any nature prior to the repayment of all amounts due under the Debentures, and whereby such indebtedness is made expressly subordinate in right of payment to the indebtedness evidenced by the Debentures, as reflected in a written agreement reasonably acceptable to, and approved by, the Purchasers. The term the Excepted Debtholders includes the March Purchasers, the Archer Purchasers and such other debtholders described on Schedule 2.3(b)(iii)attached hereto (together, the “Excepted Debtholders”);

(v)the delivery of a consent, waiver and amendment agreement, in the form attached hereto as Exhibit I duly executed by each March Purchaser (the “Consent, Waiver and Amendment Agreement”);

(vi)the Interest and Loan Purchase Agreement (“ILPA”) among Capital Growth Acquisition, Inc. (“Acquisition”), Vanco Direct USA, LLC (“VDUL”) and the Administrators for the estate of Vanco, plc (“Administrators”) shall have been duly executed on terms and conditions described in the Disclosure Schedules hereto, and the transactions consummated thereunder shall have been consummated subject only to the conveyance of the VDUL limited liability company interest, which shall be subject only to certain post-closing state regulatory filings described on Schedule 3.1(m)(A) hereto or the passage of time as further described on the Disclosure Schedules hereto;

(vii)the closing of the Archer Loan Agreement, with gross proceeds of not less than $8,500,000 to the Company and its Affiliates, shall have been consummated prior to or contemporaneous with the Closing hereunder on terms and conditions described in the Disclosure Schedules (provided, the aggregate principal amount of the Senior Debt shall not exceed $10,500,000), and the Company shall have delivered evidence thereof to the Purchasers;

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

(ix)from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) the filings set forth in Schedule 3.1(e) required under the ILPA to obtain necessary FCC and state commerce commission approvals to the change in control of VDUL (collectively, the “Required Approvals”).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(aa)Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the projected cash flow of the Company from its future operations, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

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

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

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

(ee)Accountants. The Company’s present accounting firm is Plante Moran. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act. The Company has advised that it is in the process of retaining a new accounting firm. The Company warrants that it shall retain a new accounting firm duly registered as a public accounting firm as required by the Exchange Act and that such new firm shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending December 31, 2008.

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

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

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

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

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

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

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

(b)Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Notwithstanding the foregoing, Midsummer Investment Ltd. (“Midsummer”) has been approached by an institutional accredited investor that was introduced to Midsummer by the placement agent for this transaction (the “Potential Purchaser”) about purchasing a portion of its Securities purchased hereunder after the Closing in a private transaction.  Midsummer represents there are no present understandings or agreements to transfer any of its Securities to such Potential Purchaser, however, any such transfer otherwise in accordance with the provisions of Section 4.1(a) hereof shall in no way be deemed a breach of Midsummer’s representations and warranties hereunder or under any other Transaction Document.

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

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

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

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

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

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

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

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

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

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

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

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

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

4.2Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information; Public Information.

(a)If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60^th calendar day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. Upon a cashless exercise of the Warrant, the holding period for purpose of Rule 144 shall tack back to the original date of issuance of such Warrants.

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

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

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

4.5Conversion and Exercise Procedures. Each of the Purchasers agrees the he/she/it will not convert their Debenture or exercise their Warrant until such time as the Authorized Share Approval has occurred. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debenturesset forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

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

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

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

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

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

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4.11Reservation and Listing of Securities.

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

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

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

(d)In addition, the Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date following the date hereof, and in any event within 75 calendar days following the Closing Date, for the purpose of obtaining the Authorized Share Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. In addition, the Company agrees to use its best efforts to promptly respond to any comments the Commission may have with respect to any preliminary proxy statement. If the Company does not obtain the Authorized Share Approval at the first meeting, the Company shall call a meeting every 30 days thereafter to seek Authorized Share Approval until the earlier of the date the Authorized Share Approval is obtained or the Debentures and Warrants are no longer outstanding.

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4.12Participation in Future Financing.

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

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

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

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

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

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

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

4.13Subsequent Equity Sales.

(a)From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, a Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

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

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(c)Unless and until the Authorized Share Approval is obtained, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents. So long as the Debentures or Warrants are outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $0.24 (subject to adjustment for forward and reverse stock splits, stock dividends and combinations and similar transactions affecting the Common Stock after the Closing Date). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

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

4.14Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

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

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

4.17Capital Changes. Until the one year anniversary of the Effective Date, other than in connection with a Permitted Reverse Stock Split (as defined below), the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of the Common Stock that is approved on or before April 15, 2009 for purposes of satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and is effective contemporaneous with, or immediately prior to, the approval of the Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

4.18Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then, subject to SEC Guidance (as defined in the March Registration Rights Agreement) the Company shall send a written notice of such determination to each Purchaser and, if within

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

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

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

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4.21Other Agreement(s). From the date hereof until the two year anniversary of the Closing Date, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents to Patrick Shutt, George King or Robert Pollan, or any of their respective Affiliates. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 21, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse Midsummer Capital, LLC (“Midsummer”) the non-accountable sum of $75,000 for its legal fees and expenses, $25,000 of which has been paid prior to the Closing. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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5.18Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FWS. FWS does not represent all of the Purchasers but only Midsummer. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

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

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

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

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

[SIGNATURE PAGES FOLLOW]

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

CAPITAL GROWTH SYSTEMS, INC.	Address for Notice: Attention Chief Executive Officer 500 W. Madison St., Suite 2060 Chicago, Illinois 60661 Facsimile: 312-673-2422
By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice):
Shefsky & Froelich Ltd. 111 E. Wacker Dr., Suite 2800 Chicago, Illinois 60601 Facsimile: 312-275-7569

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO CGSY SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Principal Amount (Subscription Amount multiplied by 1.65): _____________

Warrant Shares: _________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

EX-10.12 13 v132473_ex10-12.htm

Exhibit 10.12

EXHIBIT A

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

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

Original Issue Date: November ___, 2008

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

$_______________

ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on the seven year anniversary of the Original Issue Date (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

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

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

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

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

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

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

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

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

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

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

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

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

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

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

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

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

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

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

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

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

¹ A*B-A/23, where A = the initial Subscription Amount and B = 1.65.

¹ A*B-A

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Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

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

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

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

Section 4.Conversion.

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

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

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

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d)Mechanics of Conversion.

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

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

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

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

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

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

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

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

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Section 5.Certain Adjustments.

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

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

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

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

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

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

g)Notice to the Holder.

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

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

Section 6.Quarterly Redemption.

a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”).

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The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and, if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the March Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the March Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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

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Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

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

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

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

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

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

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

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

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

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Section 8.Events of Default.

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

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

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

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

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

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

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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

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

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

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

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

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

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Section 9.Miscellaneous.

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

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

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

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

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

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

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

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

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

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November___, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

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

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

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[SIGNATURE PAGES FOLLOW]

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

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title
Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due November ___, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:  

Account No:  

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on November ___, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.13 14 v132473_ex10-13.htm

Exhibit 10.13

EXHIBIT C

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

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

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

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

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

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

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

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

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

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

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

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e)Mechanics of Exercise.

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

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

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

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

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

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

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

Section 3.Certain Adjustments.

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

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

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

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

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

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

g)Notice to Holder.

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

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

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Section 4.Transfer of Warrant.

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

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

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

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

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Section 5.Miscellaneous.

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

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

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

d)Authorized Shares.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Signature Pages Follow)

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

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

20

16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

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

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

22

(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

23

(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

24

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

26

[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

S1-1

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

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(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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

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

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

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

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

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

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

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

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

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

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

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

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

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

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

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

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

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

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

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.Subordination of Debt.

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

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

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

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

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

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

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

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

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

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

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4.Disposition of Collateral.

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

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

5.Limitations on Rights and Remedies.

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

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

6.Intercreditor Arrangements in Bankruptcy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10. Purchase Option.

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

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

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

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

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

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

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

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

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

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

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

12. Invalidated Payments; Waivers by Junior Creditors.

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

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

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13.Additional Senior Debt; Amendments to Loan Documents.

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

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

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

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

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

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

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

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

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

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

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

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

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

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

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

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

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

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

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

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

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

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

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

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

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

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

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

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

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

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

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

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

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

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

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

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

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

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

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

[SIGNATURES BEGIN ON NEXT PAGE]

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

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

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

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3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

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4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

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

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[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

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EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

A-1

(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

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EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.3

Exhibit 10.3

MANAGEMENT SERVICES AGREEMENT

This Management Services Agreement (the “Agreement”) is entered into this ___ day of November, 2008, by and among Vanco plc (in administration), a company incorporated under the laws of England and Wales with registered number 3470117 (“Vanco”), Simon John Granger and Chad Griffin, each an insolvency practitioner of FTI Consulting Limited, a company with its principal offices at Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB, in their respective capacities as joint administrators of Vanco (together the “Administrators,” which term shall include their successors in office), and Capital Growth Acquisition, Inc., a corporation organized under the laws of Delaware (“Manager”). Individually, each of Manager, the Administrator, and Vanco is a “Party” and collectively they are the “Parties.”

WHEREAS, Administrators were appointed to act as joint administrators of Vanco on May 25, 2008 by Lloyds TSB Bank plc in accordance with paragraph 14 to Schedule B1 to the (English) Insolvency Act 1986;

WHEREAS, Vanco has inter alia one U.S. subsidiary, Vanco Direct USA LLC (“VDUL”), a Delaware limited liability company which holds domestic and international Section 214 authorizations from the U.S. Federal Communications Commission (“FCC”) and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions (the “State Commissions” and, collectively with the FCC, the “Commissions”) (such authorizations and certificates collectively referred to as the “Licenses”);

WHEREAS, Manager has made a bid to purchase the limited liability company interests of VDUL from Vanco, which bid has been approved by the Administrators;

WHEREAS, Vanco has entered into an Interest Purchase Agreement with Manager of even date herewith for the sale of the limited liability company interests in VDUL (the “Purchase Agreement”), pursuant to which Manager will acquire VDUL in a manner consistent with applicable law;

WHEREAS, the Parties acknowledge and agree that certain Regulatory Approvals must be obtained before control of VDUL can be transferred to Manager; the effective date of the closing of the Purchase Agreement pursuant to which the limited liability company interests of VDUL shall be conveyed to Manager is the “Closing Date.”

WHEREAS, Vanco has retained de facto and de jure control of VDUL pending receipt of all Regulatory Approvals;

WHEREAS, in order to ensure uninterrupted service to customers of the VDUL Systems pending issuance of the approvals, and to avoid associated potential disruption to customers, the Parties desire to enter into an arrangement for Manager to manage VDUL and VDUL’s network and operations in the United States that is the subject of the Licenses (the “VDUL Systems”), at all times subject to the oversight, review, supervision and control of Vanco;

WHEREAS, the parties hereto believe it to be in their mutual best interests for Manager to provide certain services as described below to VDUL until the requisite Regulatory Approvals can be obtained and the proposed transaction can be completed;

WHEREAS, Vanco and Manager desire that Manager provide management services to VDUL in conformity with the rules and policies of the FCC, the State Commissions, and the terms and conditions of the Purchase Agreement and this Agreement; and

WHEREAS, Manager desires to serve as the manager of VDUL and the VDUL Systems pursuant to the terms set forth in this Agreement;

NOW THEREFORE, in consideration of the mutual promises contained herein, the sufficiency of which is acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. Each term capitalized herein and not otherwise defined shall have the meaning assigned to it in the Purchase Agreement.

“Communications Licenses” means those licenses, registrations, authorizations or other authorities which permit VDUL to provide regulated interstate, intrastate and local regulated telecommunications services.

“Confidential Materials” means any information or materials, whether written or oral, tangible or intangible; (i) concerning Vanco, its subsidiaries, businesses, markets, products, prospects, finances and member(s), and (ii) which Manager develops, or with respect to which Manager gains access or knowledge, as a direct result of Vanco’s, Administrators' or VDUL’s provision to Manager of information and/or materials. Notwithstanding the foregoing, the Confidential Material shall not include (A) information that was known to, and material that was in the possession of, Manager prior to the commencement of any negotiations with Vanco and Administrators, (B) information that is or becomes generally known to, and materials possessed by, the public at large or entities involved in the business of VDUL (other than as a result of a breach of this agreement by Manager or by disclosure of any other party which Manager knows, or has reason to know, is under an obligation of confidentiality to Vanco and Administrators), (C) information or material acquired by Manager independently from a third party (other than a third party that Manager knows, or has reason to know, is under an obligation of confidentiality to Vanco and Administrators), and (D) information or material independently developed by Manager and not as a result of the disclosure of information or provision of materials by Vanco or Administrators. The Confidential Materials may include, but are not necessarily limited to, concepts; techniques; data; documentation; research and development; customer lists; advertising plans; distribution networks; new product concepts; designs; patterns; sketches; planned introduction dates; processes; marketing procedures; "know-how"; marketing techniques and materials; development plans; names and other information related to strategic partners, suppliers, or vendors; pricing policies and strategic, business or financial information, including business plans and financial pro formas.

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ARTICLE II

APPOINTMENT OF MANAGER

Section 2.1 Appointment, Authority, Obligations of Manager.

(a) Manager hereby agrees, subject to the terms, conditions, and limitations set forth in this Agreement, to provide supervision and management services to VDUL so as to meet any and all ongoing obligations associated with the VDUL Systems and the services provided using the VDUL Systems (the “VDUL Services,” and together with the VDUL Systems, the “VDUL Business”), including without limitation obligations of VDUL to provide service to the customers pursuant to existing contractual relationships and to any new customers that may from time to time during the Term of this Agreement purchase such services. The duties of Manager under this Agreement shall include doing all things commercially reasonable and necessary to carry out the supervision, operation and management of the VDUL Business in a manner, and at a level of service quality, substantially consistent with past practices and the manner and level of service quality in which the VDUL Business has been operated and services have been provided by VDUL prior to the Effective Date of this Agreement.

(b) Manager hereby accepts such appointment and agrees to perform its obligations and responsibilities hereunder and agrees to devote such time and resources as are necessary to ensure proper and efficient operation of VDUL and the VDUL Business, and shall make available to Vanco the full range of its expertise and experience.

(c) Vanco hereby grants to Manager as much access as Vanco and VDUL has to all facilities, equipment, personnel, books, records and operational assets as is necessary to permit Manager to perform its obligations hereunder.

ARTICLE III

MANAGEMENT OF THE VDUL BUSINESS

Section 3.l Management of the VDUL Business.

(a) During the Term, the Manager shall have the duty to manage the VDUL Business authorized under the Communications Licenses on behalf of Vanco consistent with the provisions of this Agreement and subject to Vanco’s continued ownership, control and reasonable supervision and direction. Upon reasonable request, Manager hereby agrees to report to Vanco’s Administrators the status of the operations of the VDUL Business.

(b) Vanco and Manager desire that this Agreement and the performance of Vanco’s and Manager’s obligations hereunder be in full compliance with (i) the terms and conditions of the Communications Licenses; (ii) the Communications Act of 1934, as amended (the “Act”); (iii) all applicable rules, regulations and policies of the Commissions; and (iv) any other applicable federal, state and local law or regulation. It is expressly understood by Vanco and Manager that nothing in this Agreement is intended to give Manager any right which would be deemed to constitute a transfer of control (as is defined in the Act and/or any applicable FCC or state rules, regulations or case law) by Vanco of any of the Communications Licenses from Vanco to Manager to the extent prohibited by the applicable federal and state law, or the rules or regulations of any Commission.

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(c) Manager acknowledges and agrees that Vanco has certain rights and obligations pursuant to the Communications Licenses with respect to activities authorized thereunder, which include compliance with the Act, and the rules, regulations, and policies of the Commissions. The services provided by Manager hereunder are not intended to diminish or restrict Vanco’s compliance with its obligations under applicable law or before the Commissions, and this Agreement shall not be construed to diminish or interfere with the obligations of Vanco or its ability to comply with the rules, regulations or directives of any governmental or jurisdictional authority with respect to the Communications Licenses or the VDUL Business.

(d) Vanco shall have unfettered access and authority to inspect the books and records, equipment and related hardware that is required to transmit and/or receive telecommunications, including but not limited to network facilities, switching equipment, customer premises equipment and testing equipment, for any reason and at any time, including but not limited to access for purposes of determining whether, under the Manager’s supervision and management, the VDUL Business is operating in a manner that violates the terms of this Agreement, the Act or the Commissions’ rules, regulations, or policies, or is otherwise operating in a harmful or unlawful manner.

(e) Manager shall be responsible for providing the management services in compliance with VDUL’s existing tariffs and service contracts, and all applicable laws, including, without limitation, tariffs in effect from time to time. Manager shall perform the management services in a professional manner and in accordance with all applicable professional or industry standards.

ARTICLE IV

PAYMENT OF COSTS AND MANAGER’S COMPENSATION

Section 4.1 Payment of Costs. As of the Effective Date, Manager shall be responsible for payment by VDUL of all costs and expenses (the “Costs”) incurred or due with respect to the maintenance and operation of VDUL, the VDUL Systems, the compensation of VDUL’s employees, and the provision of the VDUL Services, and shall be given full access and signatory authority to all VDUL financial accounts (the “Accounts”), including VDUL funds as of the Effective Date and all revenues collected by VDUL (or on behalf of VDUL by Manager) during the Term of this Agreement in connection with the operation of the VDUL Business (the “Revenue” and together with the Accounts, the “VDUL Funds”). VDUL hereby authorizes Manager to use the VDUL Funds to pay its Costs and the Monthly Management Fee (as defined below).

Section 4.2 Monthly Management Fee. As consideration for Manager providing the management services described herein, Vanco agrees that Manager shall be paid out of the VDUL Funds a monthly fee (“Monthly Management Fee”) equal to 30% of the Revenues received each month; provided that, in any month during the Term in which the Monthly Management Fee would otherwise exceed VDUL’s Revenues less its Costs (the “Net Revenue”), the Monthly Management Fee shall be no greater than the Net Revenue, if any, and VDUL shall not have any obligation to pay Manager any greater amount. The Monthly Management Fee shall be paid solely from the VDUL Funds on the last business day of each month, with the final Monthly Management Fee being paid at the end of the Term (as defined below).

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Section 4.3 Status Reports. At Vanco’s request, Manager shall provide Vanco with updates on the status of the operation of the VDUL Business and the overall financial condition of VDUL.

Section 4.4 Books and Records. Manager shall create and maintain complete and accurate records of all financial and other material transactions relating to performance of this Agreement in a manner consistent with records prepared and maintained by Manager in the ordinary course of business and with U.S. generally accepted accounting principles. At its discretion and expense, Vanco may conduct periodic audits of Vanco’s records relating to performance of this Agreement and its operation and management of the VDUL Business.

ARTICLE V

COMPLIANCE WITH APPLICABLE LAWS

Section 5.1 Compliance with Applicable Laws and Regulations.

(a) Manager agrees that, in connection with providing the management services hereunder, it shall comply in all material respects with all applicable laws, ordinances, rules, regulations, and restrictions, including but not limited to the Act, the FCC and State Commission rules, regulations, and policies, and local ordinances, and shall respond promptly to all regulatory correspondence or inquiries and any and all adversarial pleadings of whatever nature filed with the Commissions or any other governmental authority and will promptly notify Vanco of the receipt thereof.

(b) Vanco and Manager agree that they shall not take any action that would violate any Communications License or that could reasonably be expected to cause the cancellation, revocation, or adverse modification of any Communications License or that could be expected to otherwise impair the good standing or renewal of any License.

(c) Manager acknowledges and agrees that Vanco has certain rights and obligations pursuant to the Communications Licenses with respect to activities authorized thereunder, which include compliance with the Act and similar state statutes, and the rules, regulations, and policies of the Commissions. The services provided by Manager hereunder are not intended to diminish or restrict Vanco’s compliance with its respective obligations under applicable law or before the Commissions, and this Agreement shall not be construed to diminish or interfere with any Vanco’s obligation or ability to comply with the rules, regulations or directives of any governmental or jurisdictional authority with respect to the Communications Licenses. On behalf of Vanco, Manager shall take or cause to be taken all reasonable and appropriate steps necessary to keep the Communications Licenses in full force and effect and in good standing.

(d) Manager and Vanco recognize that VDUL, and ultimately Vanco, remain responsible for compliance with the terms of the Communications Licenses. In that regard, the Manager shall not, without the prior consent of Vanco’s Administrators, such consent not to be unreasonably withheld if consistent with past practice of operations by VDUL, take the following actions:

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(i) enter into, modify, intentionally breach or terminate any material agreement relating to the assets managed by Manager, other than in the ordinary course of business;

(ii) sell, assign, lease, transfer or otherwise dispose of any material asset or purchase or otherwise acquire any assets for VDUL except for non-material assets acquired in the ordinary course of business;

(iii) initiate, settle or terminate any material litigation relating to the regulated aspects of the VDUL Business or waive any material rights of VDUL or Vanco;

(iv) demote or terminate any employee of VDUL other than with respect to headcount reduction amounts previously disclosed to Manager;

(v) hire any employee for VDUL; or

(vi) cause VDUL to take any action or neglect to take any action which would constitute a default under this Agreement or the Purchase Agreement.

(e)   The parties hereby agree that Manager shall request Vanco’s consent to the actions referenced in Section 5.1(d) above in writing to Vanco’s Administrators.  For purposes of this Section 5, notice and consent by any party can be achieved by electronic mail. Unless Vanco refuses in writing to grant consent within two (2) business days of receipt of a request for consent by Manager, Vanco’s consent will be deemed granted.

(f) Vanco shall be responsible for the filing of all applications, reports, correspondence and other documentation with the Commissions relating to the VDUL Business; provided, however, that Manager shall assist Vanco by preparing such filings for Vanco’s review; and provided, further, that Manager shall reimburse Vanco out of the VDUL Funds for all of its reasonable out-of-pocket legal fees and other expenses incurred in connection with such applications, correspondence and other related matters, to the extent that any such review results in material changes to any of the materials prepared by Manager. Manager shall provide upon Vanco’s reasonable request any information which will enable it to review and complete any records and reports required by the Commissions and other federal, state or local government authorities.

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ARTICLE VI

TERM

Section 6.1 Term. The term (“Term”) of this Agreement shall commence upon the “Initial Closing” as that term is defined in the IPA (the “MSA Effective Date”) and automatically end on the earlier of (i) the Closing Date; or (ii) termination of the Purchase Agreement pursuant to Section 8.13 thereof.

Section 6.2 Automatic Termination. This Agreement shall automatically terminate if any Commission issues a formal written order, which is final and non-appealable, that Manager is precluded from performing its duties hereunder and any period of time provided by such Commission to Manager to remedy such situation has expired.

Section 6.3 Performance After Termination. After receipt of written notice of termination, but prior to the effective date of such termination, Manager shall continue to perform under this Agreement unless specifically instructed to discontinue such performance.

Section 6.4 Termination Transition. On the effective date of any termination, or before such date if so instructed, Manager shall relinquish to Vanco, or its designee, possession of all property of VDUL, including but not limited to the VDUL Systems, The VDUL Funds, and all documents, data and records pertaining to the VDUL Business, including without limitation complete records of all financial and other material transactions relating to Manager’s performance of this Agreement. Notwithstanding anything to the contrary contained herein, in the event of a successful closing of the Purchase Agreement on the Closing Date, then VDUL shall retain all property of VDUL, however Vanco shall be entitled to inspect and copy all records pertaining to VDUL necessary for Vanco to complete its tax returns, to monitor compliance of Manager with respect to its obligations hereunder and to enable Vanco to address any regulatory issues that may arise as a result of its ownership of VDUL through the Closing Date.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Amendment and Modification; Obligation to Renegotiate. This Agreement may be amended, modified or supplemented only by written agreement of Vanco and Manager. In the event that a governmental entity with jurisdiction over any or all of the Parties or over this Agreement determines that one or more provisions of this Agreement are unlawful, contrary to public policy, or otherwise unenforceable, the Parties will negotiate in good faith to amend the Agreement in order to comply with any such applicable regulatory requirements or policies while preserving the business objectives of all Parties.

Section 7.2 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, or condition shall not operate as a waiver of or estoppel with respect to any subsequent or other failure.

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Section 7.3 Notices. All notices under this Agreement shall be sufficiently given for all purposes if made in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, facsimile or other electronic transmission, to following addresses and numbers:

Notices to Seller shall be addressed to:
	Vanco plc (in administration) Holborn Gate 26 Southampton Buildings London WC2A 1PB Fax: +44-203-077-0599 E-Mail: simon.granger@fticonsulting.com Attn: The Administrators
Notices to Administrators shall be addressed to:
	The Administrators Holborn Gate 26 Southampton Buildings London WC2A 1PB Fax: +44-203-077-0599 E-Mail: simon.granger@fticonsulting.com Attn: Simon Granger
Each with a copy to:
	Bingham McCutchen LLP 2020 K Street, N.W., Suite 1100 Washington, DC 20006 Fax: (202) 373-6001 E-Mail: jean.kiddoo@bingham.com Attn: Jean L. Kiddoo, Esq.

or at such other address and to the attention to such other person as Seller and/or Administrators may designate by written notice to Manager.

Notices to Manager shall be addressed to:
	Capital Growth Acquisition, Inc. 500 W. Madison, Suite 2060 Chicago, Illinois 60661 Fax: 312-673-2422 E-Mail: pshutt@globalcapacity.com; Attn.: Patrick Shutt, CEO

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With a copy to:
	Shefsky & Froelich Ltd. 111 E. Wacker, Suite 2800 Chicago, Illinois 60601 Fax: 312-527-3194 E-Mail: mgoldsmith@shefskylaw.com; Attn.: Mitchell D. Goldsmith, Esq.

or at such other address and to the attention of such other person as Manager may designate by written notice to Seller and Administrators.

Section 7.4 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto, including by operation of law, without the prior written consent of the other party; provided however, that Vanco’s consent to a request by Manager to assign this Agreement to a special purpose acquisition company shall not be unreasonably withheld so long as Manager provides assurance that such special purpose vehicle is financially qualified to undertake Manager’s responsibilities under this Agreement, which assurance may include, at Vanco’s request, a guarantee by the parent company of the special purpose vehicle. Any assignment of this Agreement or any of the rights, interests or obligations hereunder in contravention of this Section 7.4 shall be null and void ab initio.

Section 7.5 No Third-Party Beneficiaries; Limitation of Liability. Nothing in this Agreement shall be construed as giving any person other than the Parties hereto any legal or equitable right, remedy or claim under or with respect to this Agreement.

Section 7.6 Invalidity. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy all other terms, the conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.

Section 7.7 Governing Law and Binding Effect. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware applicable to contracts made and to be performed entirely therein without giving effect to the conflicts of laws principles thereof.  This Agreement shall also be governed by and construed and enforced in accordance with applicable federal law.  This Agreement shall bind and inure to the benefit of each of the Parties and their permitted successors and assigns.

Section 7.8 Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original and all of which together shall constitute one and the same instrument; and, in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopy shall be as effective as delivery of a manually executed counterpart of this Agreement. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.

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Section 7.9 Entire Agreement; Amendments and Waivers. This Agreement, together with the Purchase Agreement (including the schedules and exhibits thereto) constitute the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations, and discussions, whether oral or written, of the Parties. No supplement, modification or waiver of this Agreement shall be binding unless the same is executed in writing by all parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), and no such waiver shall constitute a continuing waiver unless otherwise expressly provided.

Section 7.11 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. Whenever used herein the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall include all genders.

Section 7.12 Remedies. Vanco and Manager hereby acknowledge and agree that money damages may not be an adequate remedy for any breach or threatened breach of any of the provisions of this Agreement and that, in such event, Vanco or its successors or assigns, or Manager or its successors or assigns, as the case may be, may, in addition to any other rights and remedies existing in their favor, apply to the courts for specific performance, injunctive and/or other relief, without the necessity of posting bond, in order to enforce or prevent any violations of this Agreement.

Section 7.13 No Partnership or Joint Venture Created. Each Party shall be an independent contractor of the other Parties and nothing herein shall be construed as creating any other relationship among the Parties. The relationship established by this Agreement will not be construed to create a partnership, joint venture, or any other form of legal entity, nor establish any fiduciary relationship among the Parties or any affiliate of any Party. The provision of the services described in this Agreement does not establish any joint undertaking, joint venture, pooling arrangement, partnership, fiduciary relationship or formal business organization of any kind. Except as provided in this Agreement, no Party shall act as or hold itself out as agent for any other Party or create or attempt to create liabilities for any other Party.

Section 7.14 Confidentiality. Administrators, Vanco and Manager, and their respective officers, directors, partners and affiliates, agree to keep the terms and conditions of this Agreement and the transactions contemplated hereby confidential, and each agree not to disclose to any party not a party to this Agreement any of the terms hereof, except where such disclosure is: (i) to its professional advisers; (ii) current and prospective financing sources and their advisors; or (iii) is required by applicable law or the rules or standards of the United States Securities & Exchange Commission, the London Stock Exchange or the Listing Rules of the UK Listing Authority, or the rules and requirements of any other competent regulatory body, which determination may be made in the good faith opinion of counsel to the Party that is subject to the regulatory body in question. Manager expressly acknowledges that it has received, and will receive in the future, Confidential Materials (as hereinafter defined), and that disclosure of such Confidential Materials to parties not a party to this Agreement or otherwise permitted hereunder would cause irreparable harm to Vanco or Administrators. Except with the prior written consent of Vanco or Administrators or as required by law (including as set forth in clause (iii) immediately above), neither Manager nor its officers, directors, partners or affiliates, shall (i) disclose any Confidential Materials to any party not a party to this Agreement, or (ii) use any Confidential Materials for any purpose except in connection with their efforts on behalf of Vanco or Administrators. Manager and its officers, directors, partners and affiliates shall use their reasonable best efforts to preserve the confidentiality of all Confidential Materials. In the event that a party concludes that it is legally obligated to disclose any provision of this Agreement or any Confidential Materials, such party shall provide the other party with prompt written notice, and shall seek to limit the dissemination of such Confidential Materials subject to the requirement for dissemination as may be required in the good faith opinion of its counsel as it relates to disclosure to meet regulatory body approval. In the case of legal proceedings in which such disclosure is required, the parties shall cooperate to obtain an appropriate protective order limiting the disclosure of such material. The parties acknowledge that they may be required to disclose certain terms of this Agreement, or the entirety hereof, to the FCC or certain State Commissions in connection with applying for the Regulatory Approvals or in filings with the SEC. Notwithstanding the foregoing, Administrators may disclose details of this Agreement to their appointors, advisers and any liquidator of Vanco and also for the purpose of enforcing its terms, or if required to do so by any court. They may also include appropriate details in their administration records, accounts and returns.

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Notwithstanding the foregoing, Vanco or Administrators may disclose the amount of the Purchase Price to any third party if, in the sole and absolute discretion of Seller or Administrators, such disclosure is necessary to enable Vanco and/or Administrators to fulfill its/their obligations under the terms of any contract or arrangement with such third party.

7.15 Events of Default, Remedies. 

(a)  Manager shall be in default under this Agreement upon the occurrence of any of the following events (regardless whether any such event is voluntary or involuntary or occurs by operation of law or pursuant to any judgment, decree, order, rule or regulation of any court or administrative or governmental body):

i. the failure of Manager to perform its obligations hereunder or to observe in any material respect any covenant or agreement to be performed or observed by it hereunder and the continuation of such failure for a period of thirty days after Manager receives written notice thereof;

ii. Manager loses the requisite authority to perform its obligations hereunder if (1) the loss is not remedied within sixty (60) days of the loss thereof and (2) the loss has a material adverse effect upon Vanco, VDUL or Administrators; or

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iii. any of the representations or warranties of Manager contained herein shall cease to be true in any material respect.

(b) Upon the occurrence and during the continuance of any event of default and expiration of any related cure period, Vanco and/or the Administrators may, at their option, terminate this Agreement by written notice, which shall be effective immediately (subject to the obligation to provide prior notice of default if the default was the type that was susceptible of a cure). This remedy is not intended to be exclusive, and all remedies shall be cumulative and may be exercised concurrently with any other remedy available to a Party at law or in equity.

7.16 Indemnification; Limitation of Liability.

(a) Manager hereby agrees to defend, indemnify and hold harmless Vanco, Administrators and their respective officers, directors, managers, members, employees, agents, attorneys and affiliates, as well as the managers and officers of VDUL, from and against, and to promptly pay, all damages asserted against or incurred by reason of or resulting from any action, proceeding, claim or demand of any kind (actual or contingent) that may be brought or made against Vanco, the Administrators and/or the managers or officers of VDUL, and any loss, damage, award, cost, charge, penalty or expense incurred by Vanco, the Administrators and/or the managers or officers of VDUL as a result of Manager’s management of VDUL and the VDUL Systems hereunder. IN NO EVENT SHALL VANCO BE LIABLE, WHETHER IN CONTRACT, TORT (INCLUDING BUT NOT LIMITED TO LIABILITY FOR NEGLIGENCE), MISREPRESENTATION, WARRANTY OR ANY OTHER LEGAL OR EQUITABLE GROUNDS, FOR SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF THE PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT.

(b) For purposes of the indemnifications, defense, hold harmless and other limitations of liability set forth in this section, the officers, managers, members, employees, agents, attorneys and affiliates of VDUL as of the MSA Effective Date shall be considered third party beneficiaries of this Agreement.

7.17 Force Majeure. No Party shall be liable to another Party for any failure of performance under this Agreement due to causes beyond its control, including fire, flood or other catastrophes; any law, order, regulation, direction, action, or request of the United States Government, or of any other government, including state and local governments having or claiming jurisdiction over such party, or of any department, agency, commission, bureau, corporation or other instrumentality of any one or more of these federal, state or local governments, or of any civil or military authority; national emergencies; unavailability of materials or rights-of-way; insurrections; riots; wars; or strikes, lock-outs, significant work stoppages or other significant labor difficulties. In the event of any delay resulting from such causes, upon notice to the other parties promptly following the occurrence of the event giving rise to the delay, the time for performance hereunder shall be extended for a period of time reasonably necessary to overcome the effects of such delay.

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7.18 Disclaimers. THERE ARE NO AGREEMENTS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN AND ALL OTHER WARRANTIES ARE DISCLAIMED TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW.

7.19 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the greatest extent possible.

7.20 Further Assurances. Each Party agrees to execute all such further instruments and documents and to take all such further actions as any other Party may reasonably request in order to effectuate the terms and purposes of this Agreement; provided preparation of any such instruments and documents and any such further actions shall be at Manager’s expense.

7.21 Manager’s Risk. Failure to obtain any requisite license, consent, permit, registration, right or Regulatory Approval shall not prejudice this Agreement, the Purchase Agreement or, in particular, the Purchase Price payable under the Purchase Agreement. Manager shall solely and exclusively bear all risks associated with not obtaining any or all of the Regulatory Approvals.

7.22 Exclusion of Liability.

(a) All conditions, representations (including pre-contractual negligent and innocent misrepresentations) and warranties express or implied, and whether statutory or otherwise, relating to VDUL are expressly excluded. In particular, but without limitation, all representations and warranties as to title, quiet possession, enjoyment, quality, condition, state or description of VDUL or their fitness or suitability for any purpose whatsoever or whether the Regulatory Approvals or any of them will be forthcoming are expressly excluded.

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(b) Any claim of Manager, or of any person claiming through it, against Vanco or the Administrators shall take effect as an unsecured claim and not as an administration expense.

(c) The exclusions of liability in this Agreement shall:

(i) arise and continue notwithstanding the termination of Administrators' agency before or after the signing of this Agreement and shall operate as waivers of any claims in tort as well as under the law of contract;

(ii) be in addition to and not in substitution for and notwithstanding any right of indemnity or relief otherwise available;

(iii) continue after termination hereof.

(d) Nothing in this Agreement shall operate to restrict or affect in any way any right of Administrators to be indemnified, or to exercise a lien howsoever.

(e) In the absence of an express provision to the contrary, nothing in this Agreement shall require Vanco or Administrators to carry out or continue to carry out any arrangement or contract, whether single or of continuing effect, with third parties and whether in relation to VDUL or otherwise.

(f) Any claim against Vanco and/or against Administrators (or their firm, partners, employees, agents, advisers or representatives) related to this Agreement shall in any event and in addition to the exclusions of liability contained in this Agreement, be irrevocably waived by Manager unless made in writing by notice to Administrators within 30 days after the Closing Date.

(g) The exclusions and limitations contained in this Agreement shall not apply in the case of any fraudulent misrepresentation made by Seller or Administrators or their respective agents or insofar as any action against any of them is based upon the fraud of Seller or Administrators or their respective agents.

(h) Administrators are party to this Agreement solely to obtain the benefit of the exclusions and limitations on liability and undertakings in their favor.

7.23 Exclusion of Personal Liability.

(a) Administrators are agents of Seller and have been acting in that capacity in the negotiation, preparation and implementation of this Agreement.

(b) Neither Administrators nor their firm, staff, employees, advisers and agents shall incur personal liability under this Agreement or any other deed, instrument or document entered into pursuant to it and any liability to which Administrators or their staff, employees, advisers and agents would otherwise be subject (whether in contract, tort or otherwise) is expressly excluded.

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(c) Any right under this Agreement which is for the benefit of Administrators (and in particular, without prejudice to the generality of the foregoing, any right to be indemnified by Manager and the rights granted hereunder and all rights to receive any payment from Manager) shall also be for the benefit of, and shall be exercisable by, any subsequent administrator, liquidator or other insolvency practitioner (a "Subsequent Appointee") appointed in respect of Seller and so that, as regards such Subsequent Appointee, the relevant clause shall apply mutatis mutandis so that references to Administrators shall be treated as references to such Subsequent Appointee.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written.

“Vanco”
Vanco plc (in administration) represented by one of its Administrators (acting as agent for and on behalf of Vanco without personal liability)
By:	____________________________________
Name:	Simon Granger
Title:	Administrator
“Administrators”
On behalf of the Administrators (without personal liability)
By:	____________________________________
Name:	Simon Granger
Title:	Administrator
“Manager”
Capital Growth Acquisition, Inc.
By:	____________________________________
Name:	Patrick C. Shutt
Title:	CEO

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EX-10.4 5 v132473_ex10-4.htm

Exhibit 10.4

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of Vanco plc (in administration) (together with its permitted assigns, “Vanco”).

WITNESSETH:

WHEREAS, pursuant to that certain Interest and Loan Purchase Agreement, dated as of the date hereof, by and between Capital Growth Systems, Inc., a Florida corporation (the “Company”), Capital Growth Acquisition Inc., a wholly owned subsidiary of the Company (“CGAI”), Vanco and Vanco Direct USA, LLC, a wholly owned subsidiary of Vanco (“VDUL”) (the “Purchase Agreement”), in partial consideration for all of the outstanding membership interests of VDUL, the Company has agreed to sell and issue to Vanco the Company’s Variable Rate Convertible Debenture, due seven years following its issuance (the “Debenture”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debenture; and

NOW, THEREFORE, in consideration of the premises and to induce Vanco to enter into the Purchase Agreement and purchase the Debenture and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with Vanco as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Debenture and used herein shall have the meanings given to them in the Debenture. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

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

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

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

“Obligations” means, in addition to all other costs and expenses of collection incurred by Vanco in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to Vanco, including, without limitation, all obligations under this Guarantee, the Debenture and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Vanco as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debenture and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debenture and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

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

“Subsidiary” means any direct or indirect subsidiary of the Company.

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to Vanco and its successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)The maximum liability of each Guarantor hereunder shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of Vanco hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by Vanco from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making Vanco whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Debenture.

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(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to Vanco and each Guarantor shall remain liable to Vanco for the full amount guaranteed by such Guarantor hereunder.

(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by Vanco, no Guarantor shall be entitled to be subrogated to any of the rights of Vanco against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by Vanco for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to Vanco by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for Vanco, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to Vanco in the exact form received by such Guarantor (duly indorsed by such Guarantor to Vanco, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Vanco may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by Vanco may be rescinded by Vanco and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by Vanco, and the Purchase Agreement and the Debenture and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as Vanco may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by Vanco for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Vanco shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by Vanco upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and Vanco, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or the Debenture, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by Vanco, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Vanco) which may at any time be available to or be asserted by the Company or any other Person against Vanco, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, Vanco may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by Vanco to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Vanco against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by Vanco upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to Vanco without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Vanco as of the date hereof:

(a) Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and Vanco shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Debenture prior to rendering their advice.

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4.Covenants. Each Guarantor covenants and agrees with Vanco that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debenture) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by Vanco.

(b)Notices. All notices, requests and demands to or upon Vanco or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. Vanco shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Debenture or Event of Default. No failure to exercise, nor any delay in exercising, on the part of Vanco, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Vanco of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Vanco would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse Vanco for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee, including, without limitation, the reasonable fees and disbursements of counsel to Vanco.

(ii)Each Guarantor agrees to pay, and to save Vanco harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save Vanco harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Debenture.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Debenture.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of Vanco and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of Vanco.

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(f)Set-Off. Each Guarantor hereby irrevocably authorizes Vanco at any time and from time to time while an Event of Default under the Debenture shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Vanco to or for the credit or the account of such Guarantor, or any part thereof in such amounts as Vanco may elect, against and on account of the obligations and liabilities of such Guarantor to Vanco hereunder and claims of every nature and description of Vanco against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, the Debenture or otherwise, as Vanco may elect, whether or not Vanco have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. Vanco shall notify such Guarantor promptly of any such set-off and the application made by Vanco of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Vanco under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which Vanco may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee represents the agreement of the Guarantors and Vanco with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by Vanco relative to subject matter hereof and thereof not expressly set forth or referred to herein.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

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(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)Vanco has no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee, and the relationship between the Guarantors, on the one hand, and Vanco, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and Vanco.

(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Debenture.

(o)[Reserved].

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, VANCO, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

[ADD NEW SUB]

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of Vanco pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and Vanco have entered into a Interest and Loan Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”), and in connection therewith, the Company issued to Vanco a variable rate convertible debenture having a principal amount of $3 million (the “Debenture”);

WHEREAS, in connection with the Debenture, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of Vanco;

WHEREAS, the Guarantee requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.5 6 v132473_ex10-5.htm

Exhibit 10.5

CONSENT, WAIVER, AMENDMENT AND EXCHANGE AGREEMENT

THIS CONSENT, WAIVER, AMENDMENT AND EXCHANGE AGREEMENT (the“Agreement”), dated as of November ___, 2008, is entered into by and among Capital Growth Systems, Inc., a Florida corporation (the “Company”), and the persons identified as “Holders” on the signature pages hereto (the “Holders”). Defined terms not otherwise defined herein shall have the meanings set forth in the March Purchase Agreement (as defined below).

WHEREAS, pursuant to aSecurities Purchase Agreement, dated March 11, 2008 (the “March Purchase Agreement”), among the Company and the Holders, the Holders purchased from the Company an aggregate of $19,000,000 in principal amount of Variable Rate Secured Convertible Debentures of the Company (the “March Debentures”) and were issued warrants exercisable for shares of Common Stock (the “March Warrants”);

WHEREAS, pursuant to a Securities Purchase Agreement of even date herewith in the form attached as Exhibit A hereto (the “New Purchase Agreement”) among the Company and the purchasers identified on the signature pages thereto (collectively, the “New Investors”), the New Investors will be purchasing $14,891,250 in aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, due in 364 days and subject to automatic extension upon the final closing of the Company’s acquisition of beneficial ownership of Vanco Direct USA, LLC (“VDUL,” with the final closing being the “Final Closing”) to seven years from their issuance date (the “New Debentures” together with warrants to purchase shares of Common Stock (the offer and sale of such New Debentures and warrants pursuant to the New Purchase Agreement are hereafter referred to as the “New Financing”); and

WHEREAS, pursuant to a Loan and Security Agreement by and among the Company and its Subsidiaries and ACF CGS, L.L.C. as Agent for itself and/or other lenders (the “Archer Agreement”) of even date herewith in the form attached as Exhibit B hereto among the Company and the investor identified on the signature pages thereto (“Archer”), Archer will be lending the Company $8,500,000 pursuant to a secured promissory note due 364 days from issuance but subject to automatic extension as of the Final Closing to 24 months following its issuance (“Archer Note”) (the issuance of the Archer Note pursuant to the Archer Agreement is hereafter referred to as the “ Archer Financing”);

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Holder hereby agrees as follows:

1.Waivers. Subject to the terms and conditions hereunder, each Holder hereby waives compliance with the Company’s obligation to provide, and the Holder’s right to receive, notice of the New Financing in accordance with the time frames set forth in Section 4.12(b) of the March Purchase Agreement (it being understood that the waiver in this sentence shall in no way limit a Holder’s right to participate in such New Financing as set forth in Section 4.12 of the March Purchase Agreement), and each Holder hereby waives its right under Section 4.12 of the March Purchase Agreement to participate in the Archer Financing. In addition, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Sections 4.13(a) of the March Purchase Agreement and Sections 7(a) and 7(b) of the March Debentures with respect to the New Financing and agrees that such restrictions shall not apply to the issuance of the New Debentures pursuant to the New Financing. Further, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Sections 7(a) and 7(b) of the March Debentures with respect to the Archer Financing and agrees that such restrictions shall not apply to the issuance of the Archer Note pursuant to the Archer Financing. In addition, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Section 7(a) of the March Debentures with respect to the issuance of the Administrator Debenture (as defined in the New Purchase Agreement). Lastly, subject to the terms hereunder, each Holder hereby waives the restrictions set forth in Section 4.13(a) of the March Purchase Agreement with respect to (i) the issuance of 2,000,000 shares of Common Stock and warrants to purchase 15,000,000 shares of Common Stock to Salzwedel Financial Communications, Inc., (ii) warrants to purchase 1,500,000 shares of Common Stock to Aequitas Capital Management, Inc. and (iii) warrants to the placement agent for the New Financing to purchase that number of shares that would be purchasable with 7% of the cash investments (or cash equivalent value) from the New Financing, each as descried on the Disclosure Schedules to the New Purchase Agreement.

2. Amendments and other Agreements.

(a) Amended and Restated March Debentures.

(i)The Company hereby agrees to issue each Holder other than Hudson Bay Overseas Fund, Ltd. (“HBOF”) and Hudson Bay Fund, L.P. (“HBF”, and together with HBOF, collectively, “Hudson Bay”), in exchange for such purchaser’s March Debenture, an amended and restated debenture, in the form of Exhibit C attached hereto (the “Amended and Restated March Debenture(s)”) with a principal amount equal to the principal amount of such Holder’s current March Debenture multiplied by 1.77 minus any interest paid thereon through the date hereof. The individual principal amounts of the Amended and Restated March Debentures are as set forth on Schedule A attached hereto. Other than as amended thereunder, the rights and obligations of the Holders and of the Company with respect to the Amended and Restated March Debentures shall be identical in all respects to the rights and obligations of the Holders and of the Company with respect to the March Debentures and the Underlying Shares issued and issuable pursuant to the Purchase Agreement, subject to the understanding that the Company shall have the right to effect the Amendment within 75 days following the date of New Purchase Agreement, to the extent that it presently has not reserved sufficient authorized Common Stock underlying the Amended and Restated March Debentures due to the reset in the conversion price for the Amended and Restated March Debentures to $0.24 per share. For clarity, the March Purchase Agreement and all Transaction Documents thereunder are hereby amended so that the term “Debentures” includes the Amended and Restated March Debentures and the term “Underlying Shares” includes the shares of Common Stock issuable upon conversion and redemption thereof, and the term “Transaction Documents” shall be amended to include this Agreement. The Amended and Restated March Debentures are being issued in substitution for and not in satisfaction of the March Debentures, provided, however, the Holder acknowledges and agrees that upon the issuance and acceptance of the certificate evidencing its Amended and Restated March Debenture issued pursuant to this Section, the original certificate evidencing its March Debenture will be deemed cancelled.

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(ii)With respect to Hudson Bay, the Company agrees to issue, and Hudson Bay agrees to accept, in exchange for Hudson Bays’ respective Debentures and in full satisfaction of any legal fee reimbursement owing to Hudson Bay and all liquidated damages due and which may become due under the Registration Rights Agreement, the amended and restated debentures in the form attached as Exhibit C-2 attached hereto (the “Hudson Bay Amended and Restated March Debentures”), having principal amounts set forth on Schedule A attached hereto, which shall also be deemed to constitute Amended and Restated March Debentures for all purposes hereof, but shall have the differing economic rights as set forth below in Section 2(a)(iii). For clarity, the term “Debentures” in all of the Transaction Documents shall mean both the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures. All of the Holders hereby consent to the amendments to the Debentures set forth on the Amended and Restated Debentures attached hereto as Exhibits C-1 and C-2, respectively. The Hudson Bay Amended and Restated Debentures are being issued in substitution for and not in satisfaction of Hudson Bay’s March Debentures, provided, however, Hudson Bay acknowledges and agrees that upon the issuance and acceptance of the certificate evidencing the Hudson Bay Amended and Restated Debentures issued pursuant to this Section, the original certificate evidencing its March Debenture will be deemed cancelled.

(iii) Interest. All interest with respect to the Hudson Bay Amended and Restated March Debentures (including any future make whole payments that may be due thereunder) shall be satisfied in full with the payment of a cash sum equal to the sum of $915,202.59 (allocated pro rata among HBOF and HBO based upon the respective outstanding principal amounts of their respective March Debentures immediately preceding the date hereof), which sum reflects the remaining unpaid interest and make whole amount of the March Debentures, after giving effect to all prior payments of interest or make whole payments by the Company, and all liquidated damages due and which may become due under the Registration Rights Agreement (including for failure of the Company to register the shares of Common Stock underlying the Hudson Bay Amended and Restated March Debentures and the warrants issued to them under the March Purchase Agreement, but excluding any liquidated damages which may become due pursuant to Section 4 hereunder) shall be satisfied with the issuance of the Hudson Bay Amended and Restated March Debentures.

(b)Amendments to the March Purchase Agreement.

(i)The term “Exempt Issuance” in the March Purchase Agreement is hereby amended to add the following: shares of Common Stock issued and issuable with respect to the redemption of the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures and the New Debentures or payment of any liquidated damages with respect to the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures and the New Debentures, the New Purchase Agreement and the warrants issued pursuant to the New Purchase Agreement in each case pursuant to the terms thereof as in effect on the date of the New Purchase Agreement.

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(ii)The following is added as new Section 4.18 of the March Purchase Agreement:

“Notwithstanding anything to the contrary contained herein or in any Transaction Document, if at any time prior to the Senior Creditor Repayment (as defined in that certain subordination agreement among the Company, its Subsidiaries, the Purchasers, and ACF CGS, LLC and the other investors signatory thereto) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to any Transaction Document, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash under such Transaction Documents shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages under the Transaction Documents shall be equal to the least of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such liquidated damages become due, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(c)Consent to Certain Prior Acts. To the extent not previously executed and delivered, each Holder agrees to execute the waivers attached hereto as Exhibits D-1 and D-2with respect to (i) $500,000 bridge loan transaction with Aequitas Catalyst Fund, LLC and (ii) the restatement of the Company’s financial statements as evidenced by its 2008 Form 8-K filing made prior to the date hereof.

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

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

3.Representations and Warranties. The Company hereby makes to the Holders the following representations and warranties:

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

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

(c)Issuance of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures. The Amended and Restated Debentures March Debentures and the Hudson Bay Amended and Restated March Debentures are duly authorized and, upon the execution of this Agreement by the Holders will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, as applicable, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares sufficient for the conversion in full of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures prior to giving effect to the reset provision contained therein, and the Company covenants to authorize a sufficient number of its shares of Common Stock by way of amendment to its articles of incorporation no later than 75 days following the date hereof (subject to extension as may be agreed to by the Holders of a majority of the outstanding principal amount of the Amended and Restated March Debentures).

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(d)Equal Consideration. No consideration has been offered or paid to any person to amend or consent to a waiver, modification, forbearance or otherwise of any provision of any of the Transaction Documents.

(e)Survival and Bring Down. All of the Company’s warranties and representations contained in this Agreement shall survive the execution, delivery and acceptance of this Agreement by the parties hereto. The Company expressly reaffirms that, except as set forth in the Disclosure Schedules to the New Purchase Agreement, each of the representations and warranties set forth in the March Purchase Agreement, continues to be true, accurate and complete, and the Company hereby remake and incorporate herein by reference each such representation and warranty as though made on the date of this Agreement.

(f)Holding Period for Amended and Restated Debentures. Pursuant to Rule 144, the holding period of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures (and Underlying Shares issuable upon conversion and redemption thereof) shall tack back to the original issue date of the March Debentures. The Company agrees not to take a position contrary to this Section 3(f). The Company agrees to take all actions, including, without limitation, the issuance by its legal counsel of any necessary legal opinions (which may be satisfied pursuant to Section 5), necessary to issue to the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures (and Underlying Shares issuable upon conversion and redemption thereof) without restriction and not containing any restrictive legend without the need for any action by the Holder.

(g)No Novation. The Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures are being issued in substitution for and not in satisfaction of the March Debentures. The Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures shall not constitute a novation or satisfaction and accord of any of the March Debentures. The Company hereby acknowledges and agrees that the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures shall amend, restate, modify, extend, renew and continue the terms and provisions contained in the March Debentures and shall not extinguish or release the Company or any of its Subsidiaries under any Transaction Document (as defined in the March Purchase Agreement) or otherwise constitute a novation of its obligations thereunder.

(h)No Event of Default. The Company represents and warrants to each Holder that after giving effect to the terms of the waivers contemplated in this Agreement, no Event of Default (as defined in the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, as applicable) shall have occurred and be continuing as of the date hereof.

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4.Public Information Failure Payments. As a result of the changes made to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”) which are effective February 15, 2008, the Company's obligations, pursuant to the Registration Rights Agreement, by and among the Company and each of the undersigned (the “Registration Rights Agreement”), to register the shares of Common Stock issuable upon conversion and/or exercise of the (i) Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, including shares of Common Stock issued in lieu of cash redemptions thereunder, and (ii) the March Warrants (collectively, the “144 Eligible Securities”), are hereby suspended, so long as (a) the Company is in compliance with the current public information requirement under Rule 144 and (b) the Holder may sell the 144 Eligible Securities without any restriction or limitation under Rule 144 as of that date. In connection with the foregoing, the Company hereby covenants and agrees that at any time during the period commencing on the date hereof and ending at such time that all of the Underlying Shares can be sold without the requirement that adequate public information with respect to the Company be available as set forth in Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c)(1) and such failure exceeds the extension period afforded to the Company under Rule 12b-25 of the Exchange Act to file a report that is not filed within the time period prescribed for such report, provided the Company timely files a Form 12b-25 with the Commission (any such failure being referred to as a “Public Information Failure” and the Business Day immediately following the extension period afforded by Rule 12b-25 being referred to as the “Public Information Failure Date”), then, as partial relief for the damages to the Holder by reason of any such delay in or reduction of its ability to sell the Underlying Shares (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each such holder an amount in cash equal to two percent (2.0%) of the aggregate purchase price paid by such holder under each of the Purchase Agreement for any Securities then held by such holder on the Public Information Failure Date and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (y) the date such Public Information Failure is cured and (z) such date that the public information requirement set forth in Rule 144(c)(1) is no longer required pursuant to Rule 144. The foregoing payments to which a holder shall be entitled are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Public Information Failure Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full.

5.Legal Opinion. The Company hereby agrees to cause its legal counsel to issue a legal opinion to the undersigned Holders and the Company’s Transfer Agent regarding this Agreement and the transactions contemplated hereby, in form and substance reasonably acceptable to the Purchasers, including an opinion that the 144 Eligible Securities may be sold pursuant to Rule 144 without volume restrictions or manner of sale limitations as of September 11, 2008 and that certificates representing the 144 Eligible Securities issuable upon conversion of the Amended and Restated March Debentures or a “cashless exercise” of the Warrants may be issued without a restrictive legend as required pursuant to Section 4.1 of the March Purchase Agreement.

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6.Withdrawal of Registration Statement. Subject to the terms and conditions set forth herein, the Holders hereby agree that the Company can withdraw the registration statement filed pursuant to the Registration Rights Agreement, and agree that the Company shall not be required to file or maintain the effectiveness with respect to any Underlying Shares that are eligible for resale without volume or manner-of-sale restrictions so long as the Company is in compliance with the current public information requirements pursuant to Rule 144. As of the date hereof the Company satisfies the current public information requirement under Rule 144(c)(1).

7.Confirmation of Dilution Adjustment. In connection with the issuance of the securities in the New Financing, the Conversion Price of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures has been reduced to $0.24, subject to further adjustment therein, and the exercise price of the March Warrants has been reduced to $0.24, and the number of shares underlying the March Warrants has been increased in the individual amounts set forth on Schedule B attached hereto, each subject to further adjustment pursuant to the March Warrants.

8.Conversion Between Signing and Closing. In the event a Holder wishes to convert its March Debentures between the date hereof and the Closing Date (as defined in Section 9(a)), the Company shall convert the March Debentures pursuant to its existing terms of the March Debentures without giving effect to the terms of this Agreement, such that the aggregate principal amount subject to the exchange set forth in Sections 2(a)(i) and 2(a)(ii), as applicable, shall be reduced by the amount of such conversion.

9.Miscellaneous.

(a)The foregoing waivers shall not be effective unless and until: (i) all Holders shall have agreed to the terms and conditions hereunder, (ii) the New Investors and all of the Holders execute and deliver an Intercreditor Agreement in the Form of Exhibit C attached hereto, (iii) the Holders, the New Investors and Archer execute and deliver an Intercreditor Agreement in the Form of Exhibit D attached hereto and (iv) the Administrator (as defined in the New Purchase Agreement), the Company and its subsidiaries executed and deliver a subordination and intercreditor agreement in the Form of Exhibit E attached hereto. The waivers, agreements and obligations of the Holders set forth herein shall be null and void in the event the New Financing and the Archer Financing are not consummated on or before November 21, 2008 and the Company files a Current Report on Form 8-K with respect thereto by November 24, 2008. In addition, the respective obligations, amendments, agreements and waivers of the Holders hereunder are subject to the following conditions being met: (a) the accuracy in all material respects of the representations and warranties of the Company contained herein (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) and (b) the performance by the Company of all if its obligations, covenants and agreements required to be performed hereunder. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth herein. The Company shall, on or before 8:30 AM (NY time) on the 1^st Trading Day following the date hereof, issue a Current Report on Form 8-K, reasonably acceptable to the Holders, disclosing the material terms of the transactions contemplated hereby, and shall attach this Agreement and all other related agreements thereto, including, without limitation, the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures, the Intercreditor Agreement, all material agreements under the Archer Financing and all “Transaction Documents” (as defined in the New Purchase Agreement (the “8-K Filing”). From and after the filing of the 8-K Filing with the Commission, the Holder shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall consult with the Holders in issuing any other press releases with respect to the transactions contemplated hereby.

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(b)This Agreement may be executed in two or more counterparts and by facsimile signature or otherwise, and each of such counterparts shall be deemed an original and all of such counterparts together shall constitute one and the same agreement.

(c)The Company has elected to provide all Holders with the same terms and form of agreement for the convenience of the Company and not because it was required or requested to do so by the Holders. The obligations of each Holder under this Agreement, and any Transaction Document are several and not joint with the obligations of any other Holder, and no Holder shall be responsible in any way for the performance or non-performance of the obligations of any other Holder under this Agreement or any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Holder pursuant thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or the Transaction Documents. Each Holder shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. Each Holder has been represented by its own separate legal counsel in their review and negotiation of this Agreement and the Transaction Documents.

(d)Except as set forth in the Transaction Documents (as defined in the New Purchase Agreement) and except for $43,325 that will be added to the principal amount of the Hudson Bay Amended and Restated March Debentures for Hudson Bay’s legal fees and expenses, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures.

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(e)If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

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IN WITNESS WHEREOF, this Agreement is executed as of the date first set forth above.

CAPITAL GROWTH SYSTEMS, INC.

By:_____________________________________

Name:

Title:

[signature page(s) of Holders to follow]

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COUNTERPART SIGNATURE PAGE

OF HOLDER TO

AMENDMENT AGREEMENT

AMONG CAPITAL GROWTH SYSTEMS, INC. AND

THE HOLDERS THEREUNDER

Name of Holder:___________________________________

By:______________________________________________

Name:____________________________________________

Title:_____________________________________________

EX-10.6 7 v132473_ex10-6.htm

Exhibit 10.6

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

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

Original Issue Date: March 11, 2008

$_______________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED

CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due November ___, 2009 (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture

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

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

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

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Purchasers” , and such agreement,the “Archer Loan Agreement”).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

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

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

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

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

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

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

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

______________________________

¹ A-B/21, where A = the new face amount of this Debenture and B = the initial Subscription Amount

² A-B

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

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

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

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

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

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

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

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

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

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

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

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

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

Section 4.Conversion.

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

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

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

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d)   Mechanics of Conversion.

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

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

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

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

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

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved _________³ shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

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

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

Section 5.Certain Adjustments.

_________________________

³ Original Subscription Amount under March Purchase Agreement divided by $0.50.

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

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

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

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

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

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

g)Notice to the Holder.

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

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

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h)Other Adjustments. On the 210^th calendar day following the Original Issue Date (the “Trigger Date”), the Conversion Price shall be reduced to equal the lesser of (i) the then Conversion Price and (ii) a price equal to 90% of the average of each of the VWAPs for the 5 Trading Days immediately prior to the Trigger Date. For clarity, the Conversion Price can only be adjusted downward pursuant to this Section 5(h).

Section 6.Quarterly Redemption.

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

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

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

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

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

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

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

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

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

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

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

Section 8.Events of Default.

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

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

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

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

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

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

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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

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

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

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

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

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

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Section 9.Miscellaneous.

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

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

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

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

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

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

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

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

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

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

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

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

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[SIGNATURE PAGES FOLLOW]

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

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or

Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:_____________

Account No:___________

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.7 8 v132473_ex10-7.htm

Exhibit 10.7

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

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

Original Issue Date: March 11, 2008

$__________________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE AMENDING AND RESTATING THE DEBENTURE ORIGINALLY ISSUED 3/11/08 is one of a series of duly authorized and validly issued Amended and Restated Original Issue Discount Secured Convertible Debentures Amending and Restating Debenture Originally Issued 3/11/08 of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Amended and Restated Original Issue Discount Secured Convertible Debenture Amending And Restating Debenture Originally Issued 3/11/08, due on the day immediately preceding the first anniversary of this Debenture, as that term is defined herein (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will terminate on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture.

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

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

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

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the senior lenders under the Archer Loan Agreement (the “Archer Purchasers”).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds 300,000 shares per Trading Day (subject to forward and reverse stock splits, stock dividends, stock combinations, recapitalizations and other similar transactions of the Common Stock that occur after the Original Issue Date).

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

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

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

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

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

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

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

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

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

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

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

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

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

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

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid default interest thereon, if any, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the six month anniversary of the Original Issue Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(d) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment for liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved 3,049,358 shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

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a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock duringsuch 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption, provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date). The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quarterly Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; and (iii) redemptions as permitted under the November Debentures or the Debentures;

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e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures or November Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default (or with respect to the November Debentures with respect to any event of default thereunder) exist or occur;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest payment or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

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iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, provided however that the failure of Vanco Direct USA, LLC (“VDUL”) to obtain consent to either the change in control of VDUL by the Company or of any sublease of any of its space from VDUL’s sublessor, or the sublessor or lessor senior to its sublessor or lessor senior to it sublessor with respect to space in ins lease of 200 West Wacker, Chicago, Illinois, shall not be deeded to constitute a breach of the Purchase Agreement;

vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

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x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4, or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Subject to the Archer Intercreditor Agreement, accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

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b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

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e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

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h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of Shares of Common Stock to be Issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of

Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                       

Account No:                   

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.8 9 v132473_ex10-8.htm

Exhibit 10.8

TERM LOAN AND SECURITY AGREEMENT

Dated as of November ____, 2008

Among

CAPITAL GROWTH SYSTEMS, INC.,

GLOBAL CAPACITY GROUP, INC.,

CENTREPATH, INC.,

20/20 TECHNOLOGIES, INC.,

20/20 TECHNOLOGIES I, LLC,

NEXVU TECHNOLOGIES, LLC,

FNS 2007, INC.,

MAGENTA NETLOGIC LIMITED,

CAPITAL GROWTH ACQUISITION, INC., and

VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC

(as Borrowers),

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

(as Lenders),

and

ACF CGS, L.L.C.

(as Agent)

TABLE OF CONTENTS

		Page
1.	Definitions	2
2.	Borrowing	14
3.	Interest and Fees	20
4.	Representations and Warranties of Borrowers	21
5.	Collateral	25
6.	Financial Covenants	26
7.	Collateral Covenants	26
8.	Negative Covenants	30
9.	Reporting and Information	32
10.	Inspection Rights; Expenses; Etc.	33
11.	Rights of Setoff, Application of Payments, Etc.	34
12.	Attorney-in-Fact	34
13.	Defaults and Remedies	35
14.	Indemnification	38
14.	Indemnification	43
15.	General Provisions	44

Attachments:

Addendum

Exhibit A - Lender and Lenders’ Commitment

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Term Note

Exhibit D - Employment Agreements

TERM LOAN AND SECURITY AGREEMENT

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the ___ day of September, 2008 among CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a Global Capacity Direct, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein individually as a “Borrower” and collectively as the “Borrowers”), the lenders from time to time party hereto (each a “Lender” and collectively, the “Lenders”) and ACF CGS, L.L.C., a Delaware limited liability company, as agent for the Lenders (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a secured term loan and Lenders are willing to provide a secured term loan to Borrowers on the terms set forth herein, which secured term loan Borrowers will use for the purposes permitted hereunder; and

WHEREAS, Borrowers’ business is a mutual and collective enterprise and Borrowers believe that the consolidation of the secured term loan and other financial accommodations under this Agreement will enhance the aggregate borrowing powers of Borrowers and facilitate the administration of their loan relationship with Agent and each of the Lenders, all to the mutual advantage of Borrowers; and

WHEREAS, each Borrower acknowledges that it will receive substantial direct and indirect benefits by reason of the making of the secured term loan and other financial accommodations to Borrowers as provided in this Agreement, by virtue of Borrowers’ various inter-relationships as joint guarantors or joint obligors and the beneficiaries thereof, as lessors and lessees, as suppliers and customers, and as joint venturers; and

WHEREAS, Lender’s willingness to extend financial accommodations to Borrowers, and to administer Borrowers’ collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers’ request and in furtherance of Borrowers’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions. For purposes of this Agreement:

“20/20 Inc. Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 Inc. in favor of the Agent, on behalf if itself and the Lenders, with respect to its Stock in 20/20 LLC.

“20/20 LLC Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 LLC in favor of the Agent, on behalf of itself and the Lenders, with respect to its Stock in Magenta.

“Accounts” means all presently existing or hereafter arising accounts receivable due each Borrower (including medical and health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to each Borrower, whether or not arising from the sale or lease of goods or the rendition of services by such Borrower (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of each Borrower’s rights in, to and under all purchase orders now or hereafter received by such Borrower for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to each Borrower under all contracts for the sale or lease of goods or the rendition of services by such Borrower (whether or not yet earned) (including the right to receive the proceeds of said purchase orders and contracts), all amounts payable to each Borrower under any insurance policy, all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by each Borrower that correspond to any of the foregoing.

“Account Control Agreements” shall mean collectively, the Private Bank Account Control Agreement and the HSBC Account Control Agreement.

“Acquisition” means the acquisition by CG Acquisition of 100% of the membership interests of Vanco pursuant to the Acquisition Documents.

“Acquisition Documents” means the Interest Purchase Agreement and the Management Services Agreement, together with all other agreements, instruments, opinions of counsel and other documents executed and/or delivered in connection with the Acquisition.

“Addendum” means the Addendum to Term Loan and Security Agreement attached hereto, as the same may be amended and in effect from time to time.

“Adjusted Working Capital” means the remainder of (a) the consolidated current assets of the Borrowers minus the amount of cash and cash equivalents included in such consolidated current assets, minus (b) the consolidated current liabilities of the Borrowers minus the amount of consolidated short-term Indebtedness (including current maturities of long-term Indebtedness) of the Borrowers included in such consolidated current liabilities.

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“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agent” has the meaning set forth in the preamble hereto.

“Agent Advances” has the meaning specified therefor in Section 14(h).

“Agreement Date” means the date as of which this Agreement is dated.

“Annualized EBITDA” shall mean the trailing period EBITDA annualized to twelve (12) months.

“Applicable Authorization States” means the states of Arizona, Delaware, Georgia, Indiana, Pennsylvania, Tennessee and West Virginia.

“Applicable Margin” means the rate of interest to be paid on the unpaid principal amount of the Term Note from and after the Agreement Date. For the period from and after the Agreement Date, the Applicable Margin shall be 14% per annum payable monthly, of which 9% shall be paid in cash, and 5% shall be capitalized, compounded and added to the unpaid principal amount of the Term Note monthly (whereupon from and after such date such additional amounts shall also accrue interest) (such interest, “PIK Interest”).

“Applicable Rate” means a rate equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in form approved by the Agent.

“Borrowers’ Agent” means Parent, in its capacity as agent for itself and the other Borrowers pursuant to Section 2(j).

“Borrower Asset Sales” has the meaning set forth in Section 2(c)(i).

“BT Receivable” means those certain receivables related to Magenta invoices OPT-20080807-1 and OPT-20080331-2 as defined in the BT Receivables Agreement.

“BT Receivables Agreement” means that certain Second Amendment to British Telecommunications and Magenta netLogic Ltd. Camera Agreement 10693 dated September 30, 2008.

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“BT Receivable Payment” means any cash received by a Borrower with respect to the BT Receivable.

“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent is otherwise closed for transacting business with the public.

“Capitalized Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligations” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Balance” means, at any time, unrestricted cash and cash equivalents of Borrowers, on deposit with (i) the Depository Bank and subject to the Private Bank Account Control Agreement, and (ii) HSBC USA, National Association and subject to the HSBC Account Control Agreement.

“CG Acquisition Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by CG Acquisition in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Vanco.

“Collateral” has the meaning set forth in Section 5(a).

“Commitment” means with respect to each Lender, the commitment of such Lender to make the Term Loan to the Borrowers in the amount set forth in Exhibit A hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement.

“Credit Party” means each Borrower, any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, or any other Person which has granted a Lien on any assets of such Person as collateral for any of the Obligations, and “Credit Parties” means all of the foregoing Persons collectively.

“Customer” means any customer of any Borrower.

“Debenture Documents” means the Debenture Purchase Agreements and all debentures, security agreements, guarantees and other agreements executed and/or delivered in connection with the Debenture Indebtedness.

“Debenture Indebtedness” means Indebtedness of Parent (which is guaranteed by certain other Borrowers) evidenced by the debentures issued pursuant to the Debenture Purchase Agreements, as described in Item 9 of the Addendum.

“Debenture Intercreditor Agreement” means that certain Debt Subordination and Intercreditor Agreement dated on or about the Agreement Date among Agent, for the benefit of the Agent and the Lenders, and the Debenture Purchasers.

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“Debenture Purchasers” means the Purchasers under and as defined in the Debenture Purchase Agreements and any successor holders of Debenture Indebtedness permitted under the Debenture Intercreditor Agreement.

“Debenture Purchase Agreements” mean each of: (a) that certain Securities Purchase Agreement dated as of March 11, 2008, among Parent and the Debenture Purchasers party thereto, as modified and amended pursuant to that certain Consent, Waiver, Amendment and Exchange Agreement dated on or about the Agreement Date, pursuant to which Parent agrees to issue debentures to such Debenture Purchasers to cover the outstanding interest payable for the remainder of the terms of their original debentures and to cover the remaining penalties associated with failure to meet the maximum negotiated obligations pursuant to the Registration Rights Agreement between Parent and such Debenture Purchasers; (b) that certain Note Purchase Agreement dated as of September 25, 2008, between Parent and Aequitas Catalyst Fund, LLC –Series B; (c) that certain Securities Purchase Agreement dated on or about the Agreement Date among Parent and the Debenture Purchasers party thereto; and (d) the Interest Purchase Agreement to the extent the same provides, for the issuance of a debenture to the Administrator in the original principal amount of $4,000,000.

“Depository Bank” shall mean The Private Bank and Trust Company, its successors and assigns, in its capacity as the provider of cash management services to the Borrowers.

“Default” has the meaning set forth in Section 13(a).

“EBITDA” means for Borrowers on a consolidated basis, net income (excluding non-recurring gains and extraordinary gains) before provision for interest expense, taxes, depreciation, amortization, and financing and transaction fees relating to the initial closing of this Agreement and the Acquisition ,determined in accordance with GAAP, and excluding, in any event, any non-cash impact on income or loss from application of variable accounting rules or requirements, and any expenses associated with original issue discounts and Stock based compensation.

“Employment Agreements” means, collectively, the Employment Agreements between Parent and each of (i) Patrick C. Shutt, (ii) George A. King, (iii) Robert A. Pollan, (iv) Jim McDevitt, and (v) Chris Conant, each as attached hereto as Exhibit D.

“Equipment” means all of each Borrower’s machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.

“Excess Cash Flow” means, with respect to any fiscal period for the Borrowers on a consolidated basis determined in accordance with GAAP, (a) EBITDA, plus (b) any net decrease (or minus any net increase) in Adjusted Working Capital during such period, minus (c) the sum of (i) the cash portion of interest actually paid during such period, (ii) the cash portion of income taxes paid during such period, (iii) all principal payments made in cash with respect of the Term Loan (if any), and (iv) the cash portion of capital expenditures made during such period and in accordance with Item 21 of the Addendum.

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“Excluded Equipment” means the Equipment owned by any Borrower or Vanco, as the case may be, and used in connection with the delivery of telecommunications services as part of the respective business operations of any Borrower or Vanco within the Applicable Authorization States.

“Extraordinary Receipts” means any cash received by a Borrower with respect to (a) federal and state tax refunds (but only to the extent such state tax refunds exceed $25,000, in the aggregate in any fiscal year), (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance and, unless Agent provides its prior written consent otherwise, business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, including without limitation, awards or settlements in respect of condemnation and eminent domain proceedings, (e) indemnity payments, (f) any purchase price adjustment received in connection with any purchase agreement (other than relating to ordinary purchases of goods and services in the ordinary course of business), excluding in all events, any future proceeds from the previous asset sale transactions involving Nexvu or FNS, and (g) at any time that a Default shall exist and at the sole discretion of Agent, any other cash received by a Borrower not in the ordinary course of business.

“FCC” means the U.S. Federal Communications Commission.

“Final Closing” means the release from escrow of the Purchased Membership Interests pursuant to the Acquisition Documents.

“Funding Date” means a date (i) no later than one (1) Business Day following the delivery of notification to the Agent, in form and substance satisfactory to Agent in its sole discretion, that the STA Requests (as such term is defined in the Interest Purchase Agreement) have been approved and (ii) on which satisfaction of the applicable conditions set forth in Item 2 of the Addendum have occurred.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination and applied on a consistent basis.

“General Intangibles” means all of each Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of each Borrower (including payment intangibles, all rights under insurance policies and any and all choses or things in action, goodwill, patents and patent applications, trade names, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as each Borrower’s books and records relating to any of the foregoing.

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“Goods” means all of each Borrower’s present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software to the extent included in “goods” as defined in the UCC, manufactured homes, and standing timber that is to be cut and removed for sale.

“Governing Documents” shall mean, with respect to any Person, its certificate or articles of incorporation, certificate of formation, or, as the case may be, certificate of limited partnership, its by-laws, operating agreement or, as the case may be, partnership agreement or other constitutive documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state, local or foreign national or provincial and all agencies thereof, including, without limitation, any domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions.

“HSBC Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and HSBC USA, National Association.

“Indebtedness” shall mean the aggregate amount of, without duplication, (a) all obligations of each Borrower for borrowed money, (b) all obligations of each Borrower evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of each Borrower to pay the deferred purchase price of property or services (excluding trade payables that are aged less than ninety (90) days), (d) all Capitalized Lease Obligations of each Borrower, (e) all obligations or liabilities of any other Person secured by a Lien on any asset of any Borrower, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by any Borrower; and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of any Borrower.

“Intellectual Property” means any and all licenses, patents, copyrights, trademarks, designs and the goodwill associated with such trademarks.

“Interest Expense” means, for any period, the aggregate of the interest expense of the Borrowers for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Purchase Agreement” means that certain Interest and Loan Purchase Agreement dated as of November 14, 2008 among CG Acquisition, Seller, and the Administrators party thereto.

“Inventory” means all of each Borrower’s inventory as defined in the UCC, together with all of each Borrower’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of each Borrower’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

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“Investment” shall mean the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, any Person.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments, certificates and other documents executed and/or delivered in connection with this Agreement, including collateral documents, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments, subordination agreements, intercreditor agreements, warrants and registration rights agreements (it being understood, however, that any termination of this Agreement shall not terminate or otherwise limit Agent’s or any Lender’s rights under any such warrant, registration rights agreement or other related document unless Agent expressly so agrees in writing) and all other agreements executed or delivered by any Borrower or any other Credit Party or any Affiliate of any Borrower or any other Credit Party pursuant hereto or in connection herewith.

“Magenta Account” has the meaning set forth in Section 7(k)(ii).

“Magenta Three-Party Account Agreement” shall mean the Three-Party Account Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, Magenta and HSBC Bank, plc.

“Management Services Agreement” means that certain Management Services Agreement dated as of November 14, 2008, among CG Acquisition, Seller, and the Administrators party thereto.

“Material Adverse Effect” shall mean any state of facts, events, changes or effects that is materially adverse to or materially impairs: (a) the business, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Borrowers taken as a whole; (b) the ability of Borrowers to perform the Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or any of the Lenders to enforce any of its rights or remedies with respect to the Obligations or under the Loan Documents; or (c) the Collateral (including the value and condition thereof) or Agent’s or any Lender’s Liens on the Collateral or the priority of such Liens.

“Material Contract” means, with respect to any Person, (i) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person or such Subsidiary of $250,000 or more, (ii) the Acquisition Documents and (iii) all other contracts or agreements material to the business, operations, condition (financial or otherwise), performance, prospects or properties of such Person or such Subsidiary.

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“Monthly Recurring Circuit Revenue” means the aggregate monthly invoice amount for all monthly billings issued by any of the Borrowers with respect to their circuit business. The monthly recurring circuit revenue will equal the total monthly billing amount determined as of the date the Borrowers issue their monthly invoices (usually the 1^st day of the month).

“Negotiable Collateral” means all of each Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and each Borrower’s books and records relating to any of the foregoing.

“Net Cash Proceeds” means:

(a)with respect to any sale or disposition by a Borrower of property or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under this Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by a Borrower in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction;

(b)with respect to the issuance or incurrence of any Indebtedness by a Borrower, or the issuance by a Borrower of any shares of its Stock (excluding sales of Stock in the Parent pursuant to warrants or options in existence as of the date hereof), the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of a Borrower in connection with such issuance or incurrence, after deducting therefrom only (i) all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such issuance or incurrence, and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction; and

(c)with respect to any Extraordinary Receipts received by a Borrower, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such Extraordinary Receipts, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such Extraordinary Receipts.

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“New Lending Office” has the meaning set forth in Section 2(o).

“Nexvu Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by Nexvu in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Nexvu Manager, Inc. and Nexvu APM, LLC.

“Obligations” means all indebtedness, obligations and liabilities of each Credit Party to Agent, any of the Lenders, and any of their Affiliates, individually or collectively, under the Loan Documents, whether now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise, or whether evidenced by any instrument, agreement or book account, including, but not limited to, the Term Loan (including any modification, renewal or extension), and all interest, taxes, fees, charges, expenses, indemnity obligations and attorney’s fees (whether or not such attorney is a regularly salaried employee of Agent or any of the Lenders or any of their Affiliates) chargeable to any Credit Party or incurred by Agent or any of the Lenders under this Agreement or any other Loan Document.

“Parent Stock Pledge Agreement” means that certain Pledge Agreement of even date herewith granted by Parent in favor of Agent, on behalf if itself and the Lenders, with respect to its Stock in CentrePath, GCG, 20/20 Inc., FNS, Nexvu and CG Acquisition.

“Participant Register” has the meaning specified therefor in Section 16(f)(vii).

“Permitted Dispositions” means (a) sales or other dispositions of Inventory and Equipment that is substantially worn, damaged, or obsolete or no longer used or usable in the business of the Borrowers, in each case, in the ordinary course of business and for fair consideration and on terms no less favorable to the Borrowers than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and (b) sales of Inventory to buyers in the ordinary course of business.

“Permitted Indebtedness” shall mean and include: (a) the Obligations; (b) Indebtedness arising from the endorsement of instruments in the ordinary course of business of a Borrower; (c) Subordinated Debt; (d) Indebtedness existing as of the date hereof to the extent listed on Item 9 of the Addendum; (e) Indebtedness in connection with purchase money security interests constituting Permitted Liens and Capitalized Leases not to exceed, in aggregated principal amount for all Borrowers on a consolidated basis, the amount set forth on Item 20 of the Addendum at any one time outstanding; (f) Indebtedness consisting of reimbursement obligations under surety, indemnity, performance, release and appeal bonds and guarantees thereof and letters of credit issued to landlords in the ordinary course of business of a Borrower; and (g) extensions, refinancings, refundings, renewals, modifications, amendments and restatements of any Permitted Indebtedness that do not increase the principal amount or interest rate per annum thereof, shorten the maturity thereof or accelerate the principal payments thereof.

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“Permitted Investments” shall mean and include: (a) deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent such deposits are fully insured by the Federal Deposit Insurance Corporation in which Agent has a perfected, first-priority security interest, and up £75,000 at any time in the Magenta Account, as disclosed to Agent on Item 14 of the Addendum, in the United Kingdom without such a security interest and provided such account shall be maintained at all times in accordance with the terms of Section 7(k)(ii) of this Agreement; (b) Investments in money market accounts maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (c) Investments in certificates of deposit maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (d) Investments in marketable obligations issued or fully guaranteed by the United States, or any agency thereof, and maturing not more than one (1) year from the date of acquisition; (e) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (f) Investments existing on the date hereof to the extent listed on Item 7 of the Addendum; (g) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business of a Borrower, but only to the extent the same are entered into to hedge risk and not for speculation; (h) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business of the Borrowers; and (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business the Borrowers.

“Permitted Liens” means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment, stay of execution or injunction; (iv) the performance of bids, tenders or contracts (other than for the repayment of borrowed money); (v) indemnity, performance or other bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money); and (vi) obligations to landlords in the ordinary course of business of the Borrowers; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such property or materially detract from the value of such property; (d) Liens existing on the Agreement Date and described on Item 1 of the Addendum; (e) Liens on Equipment securing all or part of the purchase price of such Equipment; provided, however, that (i) such Lien is created contemporaneously with the acquisition of such Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the Indebtedness incurred to acquire such Equipment; (f) so long as the Debenture Intercreditor Agreement is in full force and effect, Liens on all or substantially all assets of Borrowers in favor of the Debenture Purchasers to secure the Debenture Indebtedness, including the indebtedness described in Item 9 of the Addendum; (g) Liens arising from judgments, decrees or attachments that do not constitute a Default under this Agreement; and (h) Liens in favor of Agent or any of the Lenders securing any of the Obligations.

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“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“PIK Interest” has the meaning set forth in the definition of “Applicable Margin”.

“Prime Rate” means, at any time, the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s thirty (30) largest banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three (3) largest U.S. money center commercial banks, as determined by Agent. Notwithstanding the foregoing, for purposes of this Agreement, at no time shall the Prime Rate be less than five percent (5.0%) per annum. The Prime Rate may not be the lowest or best rate at which Agent calculates interest or the Lenders extend credit. Any change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change.

“Private Bank Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and the Depository Bank.

“Pro Rata Share” means the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the Total Commitment.

“Purchased Membership Interests” means the membership interests of Vanco to be purchased by CG Acquisition pursuant to the Acquisition Documents.

“Recurring Circuit Margin” means for a particular measurement period (i) the difference between the Monthly Recurring Circuit Revenue for the months comprising such measurement period and (ii) the direct cost to Borrowers of any circuits included within Monthly Recurring Circuit Revenue for the months included within such measurement period, but excluding any costs which are non-recurring.

“Register” has the meaning set forth in Section 16(f)(iv).

“Registered Loan” has the meaning set forth in Section 16(f)(iv).

“Required Lenders” means Lenders whose Pro Rata Shares aggregate at least 50.1%.

“Related Fund” means, with respect to any Person, an Affiliate of such Person, or a fund or account managed by such Person or an Affiliate of such Person.

“Seller” means Vanco plc (in administration), a United Kingdom corporation.

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“Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act) or equivalent securities issued by Magenta or any other foreign subsidiary.

“Strategic Sourcing Business Unit” means the segment of the Borrowers’ business that provides network services for clients, including design, installation, provisioning, management and monitoring of circuits.

“Subordinated Debt” means (a) so long as the Debenture Intercreditor Agreement remains in full force and effect, the Debenture Indebtedness, and (b) all of the Indebtedness owed by any Borrower to any other Person, the repayment of which is subordinated to the repayment of the Obligations pursuant to the terms of a subordination agreement approved by Agent and the Required Lenders in writing in their sole discretion.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or managing member or may exercise the powers of a general partner whether directly or indirectly, and (c) any other Person (other than a corporation, limited liability company or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Term Loan” has the meaning set forth in Section 2(a).

“Term Note” has the meaning set forth in Section 2(b).

“Total Commitment” means the sum of the amounts of the Lenders' Commitments.

“Transferee” has the meaning set forth in Section 2(o).

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, however, that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

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Other Definitional Provisions. References to the “Addendum” or any “Section” or “Exhibit” refer to the Addendum or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement: words importing any gender include the other genders; the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; all references to time of day shall refer to New York, New York time; and all references to financial calculations or statements on a “consolidated” basis mean calculations or statements that reflect information and results with respect to Borrowers and no other Person. Unless otherwise specifically indicated, all monetary amounts and references herein refer to United States dollars, and all amounts to be loaned and paid hereunder shall be in United States dollars. In the event that Agent receives any payment in any currency other than United States dollars, Agent shall determine the conversion rate with respect to such amount in its reasonable discretion for purposes of determining the amount of the Obligations that have been satisfied.

2.Borrowing and Terms of Payment.

(a)The Term Loan. Subject to the terms and conditions set forth in this Agreement, each Lender, simultaneously and proportionately to their Pro Rata Shares of the Total Commitment, agrees to make a term loan in favor of the Borrowers to be funded on the Funding Date (the “Term Loan”). Any portion of the Total Commitment not funded on the Funding Date, shall not be available to the Borrowers without the Agent’s express written consent. Subject to satisfaction of the applicable conditions set forth in Item 2 of the Addendum,on the Funding Dateeach Lender shall disburse the proceeds of the Term Loan to the Borrowers or as the Borrowers’ Agent shall request in writing. Amounts repaid in respect of the Term Loan may not be reborrowed.

(b)The Term Note. The Term Loan shall be evidenced by separate promissory notes of the Borrowers in the form of Exhibit C attached hereto payable to each Lender (the “Term Note”) in the original principal amount of such Lender’s Commitment, dated as of the Agreement Date (or such other date on which a Lender may become a party hereto in accordance with Section 16(f) hereof)and completed with appropriate insertions.

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(c)Mandatory Prepayments.

(i)Immediately upon the receipt by any Borrower of the proceeds of any voluntary or involuntary sale or disposition by any Credit Party of property or assets (including casualty losses or condemnations but excluding sales or dispositions which qualify as Permitted Dispositions) (“Borrower Asset Sales”), Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such Borrower Asset Sale; provided that, solely in respect of any Borrower Asset Sales, so long as (A) no Default shall have occurred and is continuing, (B) Borrower’s Agent shall have given Agent prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the monies are held in a cash collateral account in which Agent, for the benefit of the Agent and the Lenders has a perfected first priority security interest, and (D) Borrowers complete such replacement, purchase, or construction within 90 days after the initial receipt of such monies, Borrowers shall have the option to apply such monies to the costs of replacement of the property or assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent for application against the Obligations. Nothing contained in this Section 2(c)(i) shall permit any Borrower to sell or otherwise dispose of any property or assets other than in accordance with the terms and conditions of this Agreement.

(ii)Immediately upon the receipt by any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Extraordinary Receipts.

(iii)Immediately upon the issuance or incurrence by any Borrower of any Indebtedness (other than Indebtedness permitted hereunder) or the issuance by any Borrower of any shares of such Borrower’s Stock (excluding sales of Stock of the Parent pursuant to warrants or options in existence as of the date hereof) Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such issuance or incurrence. The provisions of this Section 2(c)(iii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(iv)No later than two (2) Business Days following the receipt by any Borrower of any BT Receivable Payment, Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to sixty-six percent (66%) of the BT Receivable Payment received by such Person. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

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(v)Within ten (10) days following delivery to Agent and the Lenders of Borrowers’ monthly financial statements pursuant to Section 9(a) for the month ended December 31, 2009 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 9(a), ten (10) days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 9(a), Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to 50% of the Excess Cash Flow of the Borrowers for fiscal year 2009. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have overpaid the Excess Cash Flow payment referred to herein, then the Agent shall credit such overpayment to any interest then due and payable, if any, or the Borrowers’ next scheduled payment of interest if no interest is then due and payable. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have underpaid the Excess Cash Flow payment referred to herein, then the amount of such underpayment shall be immediately due and payable in cash to the Agent for application to any outstanding Obligations. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

(d)Voluntary Prepayments. Borrowers may prepay the principal balance of the Term Loan in whole or in part at any time upon at least 30 days’ prior written notice from Borrowers’ Agent to Agent (which notice, once given shall be irrevocable). Any such prepayment of principal shall be accompanied by accrued interest on the amount so prepaid and any fees pursuant to Section 3(c) due and payable on the amount so prepaid. Any portion of the Term Loan prepaid hereunder may not be reborrowed.

(e)Conditions to Obligation to Making of the Term Loan. Borrowers acknowledge that Lenders’ obligation to make the Term Loan to Borrowers is subject to the following terms and conditions:

(i)Agent has no obligation to make the Term Loan to Borrowers or to extend any other financial accommodation to any Borrower unless and until (A) Borrowers deliver to Agent, in form and substance satisfactory to Agent in its discretion, each agreement, instrument, legal opinion and other document specified on Item 2 of the Addendum,and (B) each other condition precedent specified on Item 2 of the Addendumhas been satisfied in a manner satisfactory to Agent in Agent’s sole discretion. Once the conditions described in this Section 2(e) have been satisfied in Agent’s sole and absolute discretion, Agent shall provide Lender with a letter confirming same.

(ii)Lenders’ obligation to make the Term Loan to Borrowers and extend other financial accommodations to Borrowers is subject to the conditions that, as of the Agreement Date, (A) no Default will have occurred and be continuing hereunder, (B) there will have occurred no event or circumstance which has had or which could reasonably be expected to have a Material Adverse Effect, (C) Borrowers’ representations and warranties set forth in this Agreement and the other Loan Documents will be true and correct and (D) the Borrowers’ application for Special Temporary Authority has been approved by the applicable governmental authorities, as defined and described in the Interest Purchase Agreement.

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(f)Repayment of Term Loan. The entire outstanding principal balance of the Term Loan, together with all accrued and unpaid interest and all other outstanding Obligations, shall be due and payable on the Termination Date as provided for in Item 3 of the Addendum, unless sooner due as a result of acceleration or demand hereunder. Borrowers shall make each payment required hereunder or under any other Loan Document without setoff, deduction or counterclaim. All payments by Borrowers shall be made to Agent’s for the account of the Lenders or as otherwise directed by the Agent in writing from time to time and shall be made in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. Any payment received by Agent (or such Person to whom the Agent has directed payment) later than 2:00 p.m. (New York City time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(g)Maturity. This Agreement will continue in full force and effect from the Agreement Date until the Termination Date provided for in Item 3 of the Addendum.

(h)Termination on Default. Notwithstanding the foregoing, should a Default occur and be continuing, Agent will have the right to terminate this Agreement at any time without notice.

(i)Survival. Notwithstanding termination, all the terms, conditions, and provisions hereof (including Agent’s security interest in the Collateral, but excluding any obligations of Agent hereunder) will continue to be fully operative until all Obligations have been fully disposed of, concluded, paid, satisfied, and liquidated (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and obligations under the warrant and registration rights agreement issued or executed in connection herewith). All indemnification obligations of Borrowers hereunder and under the other Loan Documents shall survive termination of this Agreement and the other Loan Documents.

(j)Borrowers’ Agent. Each Borrower other than Parent hereby appoints Parent, and Parent shall act under this Agreement and the other Loan Documents, as, the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent, and each of the Lenders, may rely, and shall be fully protected in relying, on any disbursement instruction, report, information or any other notice or communication made or given by Parent, whether in its own name, as Borrowers’ Agent, or on behalf of one or more Borrowers, and Agent and each of the Lenders, shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers’ obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Borrower from taking actions permitted to be taken by a “Borrower” hereunder.

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(k)Joint and Several Liability.

(i)The Term Loan made to Borrowers and all of the other Obligations of Borrowers, including all interest, fees and expenses with respect thereto, shall constitute one joint and several direct and general obligation of all Borrowers. Notwithstanding anything to the contrary contained herein, each Borrower shall be jointly and severally, with each other Borrower, directly and unconditionally liable to Agent and each of the Lenders for all Obligations, it being understood that the Term Loan to each Borrower inures to the benefit of all Borrowers, and that Agent and each of the Lenders are relying on the joint and several liability of Borrowers as co-makers in extending the Term Loan hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any Obligation payable to Agent or any of the Lenders, it will forthwith pay the same, without notice or demand, unless such payment is then prohibited by application of law (provided such Obligation shall not be extinguished by any such prohibition).

(ii)No payment or payments made by any Borrower or any other Person or received or collected by Agent from any Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of each Borrower under this Agreement, and each Borrower shall remain liable for all of the remaining Obligations until the Obligations are paid in full.

(l)Obligations Absolute. Each Borrower agrees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any of the Lenders with respect thereto, unless such payment is then prohibited by applicable law (provided such Obligation shall not be extinguished by any such prohibition.) All Obligations shall be conclusively presumed to have been created in reliance hereon. The Obligations and other liabilities under this Agreement and the other Loan Documents shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the extension of additional credit to any Borrower or otherwise; (iii) any taking, exchange, release of or non-perfection in any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate or limited liability structure or existence of any Borrower; or (v) any other circumstance which may otherwise constitute a defense available to, or a discharge of, any Borrower. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Agent or any of the Lenders upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.

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(m)Waiver of Suretyship Defenses. Each Borrower agrees that the joint and several liability of Borrowers provided for in this Agreement shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which one or more other Borrowers may hereafter agree (other than an agreement signed by Agent specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Agent with respect to any of the Obligations, nor by any other agreements or arrangements whatever with one or more other Borrowers or with any other Person, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the Obligations and may be enforced without requiring Agent first to resort to any other right, remedy or security. Each Borrower hereby expressly waives promptness, diligence, notice of acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and any requirement that Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other Person or any Collateral.

(n)Contribution and Indemnification among Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting any of the Term Loan made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then, to the extent that such Borrower has not received the benefit of such repaid Obligations (whether through an inter-company loan or otherwise), the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount (as defined below) and the denominator of which fraction is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the greater of (i) the amount of such repaid Obligations actually received by such Borrower (whether through an inter-company loan or otherwise), and (ii) the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (x) rendering such Borrower “insolvent” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”), Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (y) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (z) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification and reimbursement under this paragraph shall be subordinate in right of payment to the prior payment in full of the Obligations.

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(o)Non-U.S. Lender. Each Lender (or any transferee or assignee thereof, including a participation holder (any such entity, a “Transferee”), that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “NonU.S. Lender”) shall deliver to the Agent and the Borrowers two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881 (c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), in each case claiming complete exemption from U.S. Federal withholding tax on payments by the Credit Parties under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms or any other forms required under applicable law within 20 days after receipt of a written request therefor from the Borrowers or the Agent. Notwithstanding any other provision of this Section 2(o), a Non-U.S. Lender shall not be required to deliver after the date hereof any form pursuant to this Section 2(o) that such Non-U.S. Lender is not legally able to deliver.

3. Interest and Fees.

(a)Interest on the Term Loan. The Term Note shall bear interest at the Applicable Rate. Interest on the Term Note shall be computed on the basis of the actual number of days elapsed over a year of 360 days. All accrued interest on the Term Note shall be payable monthly in arrears, in cash or in PIK Interest, as specified in the definition of Applicable Margin.

(b)Default Interest. To the extent permitted by law and without limiting any other right or remedy of Agent or any of the Lenders hereunder, whenever there is a Default under this Agreement, the rate of interest on the unpaid principal balance of the Obligations shall, at the option of Agent or the Required Lenders, be increased by adding the default margin identified on Item 4 of the Addendum to the interest rate otherwise in effect hereunder. In addition, upon the occurrence and during the continuation of a Default under this Agreement, all accrued PIK Interest shall immediately become due and payable in full and without any notice, demand or presentment of any kind notwithstanding any acceleration by the Required Lenders hereunder. Agent may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Borrowers acknowledge that: (i) such additional rate is a material inducement to Lenders to make the Term Loan described herein; (ii) Lenders would not have made the Term Loan in the absence of the agreement of Borrowers to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lenders that the Term Loan will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Agent and each of the Lenders in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Term Loan, and (B) compensation to Agent and each of the Lenders for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Agent’s and each of the Lenders’ entitlement to this charge will continue until all Obligations are paid in full.

(c)Fees. Borrowers will pay to Agent (to be allocated among the Lenders in accordance with their Pro Rata Shares) the fees set forth in Item 5 of the Addendum.

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(d)No Usury. Borrowers acknowledge that Agent does not intend to reserve, charge or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Agent should collect any amount from Borrowers which, if it were interest, would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations remain outstanding, will be refunded to Borrowers.

4. Representations and Warranties of Borrowers.

(a)Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc. Borrowers represent and warrant to Agent and the Lenders that: (i) the exact legal name, type of organization, jurisdiction of organization and organizational identification number of each Borrower are fully and accurately set forth on Item 6 of the Addendum, and each Borrower is duly organized and validly existing under the laws of its jurisdiction of organization; (ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Borrower’s corporate or limited liability company powers, have been duly authorized by all necessary corporate or limited liability company action, do not violate (A) any Borrower’s constituent documents, any law or regulation, including without limitation, (B) any law or regulation relating to occupational health and safety or protection of the environment, applicable to any Borrower, or any indenture, agreement, or undertaking to which any Borrower is a party or by which any Borrower or any Borrower’s property is bound, except where such violation could not reasonably be expected to have a Material Adverse Effect; (iii) this Agreement and the other Loan Documents to which any Borrower is a party constitute valid, binding and enforceable obligations of each Borrower party thereto in accordance with the terms hereof and thereof, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors’ rights generally or by generally applicable equitable principles affecting the enforcement of creditors’ rights; (iv) no Borrower has any subsidiaries or other investments in other Persons, except as set forth on Item 7 of the Addendum and except for other Permitted Investments; (v) except as set forth on Item 29 of the Addendum, each Borrower is in compliance in all material respects with all laws, rules and regulations applicable to such Borrower, including laws, rules or regulations concerning the environment, occupational health and safety and pensions or other employee benefits; (vi) except as set forth on Item

8 of the Addendum, there is no litigation or investigation pending against any Borrower (or, so far as any Borrower is aware, threatened) which, if it were decided adversely to such Borrower, could reasonably be expected to have a Material Adverse Effect (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the Term Loan hereunder, no Borrower is indebted to any other Person for money borrowed nor has any Borrower issued any guaranty of payment or performance by any other Person, except for Permitted Indebtedness; (viii) since the date of the financial statements of Borrowers most recently delivered to Agent, there has been no material adverse change in any Borrower’s business, any Borrower’s financial or operational condition or any Borrower’s business prospects; and (ix) each Borrower is, and after giving effect to the consummation of the Acquisition, the incurrence of the Term Loan under this Agreement and the application of the proceeds of such Term Loan, the Borrowers, on a consolidated basis, will be, solvent and will have sufficient revenues to pay the Borrowers’ obligations as they come due and adequate capital with which to conduct the Borrowers’ business, all determined on a consolidated basis.

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(b)Title to Assets, Other Collateral Matters. Borrowers represent and warrant to Agent and the Lenders that: (i) subject to the escrow established for the Purchased Membership Interests pursuant to the Acquisition Documents, Borrowers have good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust, security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by any Borrower, except in Agent’s favor for the benefit of the Agent and the Lenders, and except with respect to Permitted Liens; (ii) the Accounts are not subject to any material dispute, claim or right of offset and are validly owing by the applicable Customers and, subject to immaterial exceptions, are collectible by Borrowers in the ordinary course of business; (iii) all Inventory is in good condition, meets all applicable governmental standards and is currently usable or saleable in the ordinary course of the applicable Borrower’s business for a price approximating at least such Borrower’s cost thereof; (iv) all Equipment is in good condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards in all material respects; (vi) in the past five years, except as set forth on Item 9 of the Addendum (A) no Borrower has used any other legal, trade or fictitious names, and (B) other than the Acquisition, no Borrower has been a party to any merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) the chief executive office and principal place of business of each Borrower, all Inventory, all Equipment and all other Collateral is located at the addresses (including the county) set forth on Item 11 of the Addendumand has not been located at any other location during the five year period prior to the Agreement Date.

(c)Ownership Structure.Borrowers represent and warrant that Item 12 of the Addendum accurately describes the ownership of each Borrower’s capital stock, membership interests or other equity interests.

(d)Acquisition. Borrowers represent and warrant to Agent and the Lenders that (i) Borrowers have furnished to Agent true, complete and correct copies of all of the Acquisition Documents (including any schedules, exhibits and annexes thereto) as in effect on the date hereof; (ii) none of the Acquisition Documents has been amended, supplemented or modified; (iii) the Acquisition Documents constitute the complete understanding among the parties thereto in respect of the Acquisition and the other matters and transactions covered thereby; (iv) each Acquisition Document has been duly executed and delivered by the parties thereto and is a legal, valid and binding obligation of each such party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles; and (v) the Borrowers are not aware of any fact or circumstance that would prohibit the Acquisition from occurring including, without limitation, the Final Closing.

(e)Consummation of Transactions. Subject to the occurrence of the Final Closing upon satisfaction of the conditions precedent set forth in Section 1.5 of the Interest Purchase Agreement, Borrowers represent and warrant to Agent and the Lenders that, on the Agreement Date, the transactions contemplated by the Acquisition Documents will have been consummated in accordance with all applicable laws (except where such non-compliance could not reasonably be expected to have a Material Adverse Effect) and, except as consented to in writing by Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the material conditions to such consummation set forth in the Acquisition Documents shall have been fulfilled without any waiver of any such material conditions. Agent acknowledges that the Purchased Membership Interests shall be held in escrow pursuant to the satisfaction of certain conditions specified in the Interest Purchase Agreement, and Borrowers represent and warrant to Agent and Lenders that (i) the Purchased Membership Interests will be owned by CG Acquisition free of such escrow arrangement or any claim by Seller no later than 90 days after the Agreement Date, and (ii) the Seller has no right to remove the Purchased Membership Interests from such escrow arrangement or otherwise reclaim the Purchased Membership Interests or prevent CG Acquisition from becoming the absolute owner thereof no later than 90 days following the Agreement Date.

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(f)Licenses and Governmental Approvals. Borrowers represent and warrant to Agent and Lenders that, except for those Governmental Approvals the absence of which could not reasonably be expected to have a Material Adverse Effect, (i) each Borrower has all Governmental Approvals required by applicable law in order to operate its business; (ii) all such Governmental Approvals are in full force and effect; and (iii) Agent and each of the Lenders are not required to obtain any such Governmental Approval in order to enter into the transactions contemplated by this Agreement or to exercise their rights and remedies hereunder (including the liquidation of the Collateral and collecting the Accounts), except for such consents and approvals as may be required by the FCC or any state public service commission in connection with the transfer of control or assignment of a licensee of, or an authorization or license issued by such governmental entity to Vanco and as set forth on Item 29 of the Addendum and except for such consents and approvals that that would be required under federal law for Agent and each of the Lenders to exercise their rights and remedies hereunder.

(g)Additional Representations. Borrowers represent and warrant to Agent and the Lenders that: (i) no Borrower is engaged as one of such Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) no Borrower owns any real property or leases any real property other than as listed on Item 13 of the Addendum; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Item 13 of the Addendum; and (iv) a true, correct and complete list and brief description of all bank accounts maintained by each Borrower with any bank or financial institution is set forth on Item 14 of the Addendum.

(h)Intellectual Property. Borrowers represent and warrant to Agent and the Lenders that, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Item 15 of the Addendum is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Borrower is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, to the best knowledge of Borrowers, after reasonable inquiry, threatened in writing to be brought against any Borrower which would be reasonably likely to jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications.

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(i)Leases. Borrowers represent and warrant that, each Borrower enjoys peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by a Borrower exists under any of them.

(j)Material Contracts. Borrowers represent and warrant that, set forth on Item 16 of the Addendumis a description of all Material Contracts of the Borrowers, showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the applicable Borrower and, to the best of Borrowers’ knowledge, each other Person that is a party thereto in accordance with its terms, (b) is not in default due to the action or inaction of any Borrower and (c) neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under any Material Contract.

(k)Customers and Suppliers. Borrowers represent and warrant that, set forth on Item 17 of the Addendum is a list of the top 20 largest customers of the Credit Parties and the top 20 largest suppliers of Credit Parties, in each case for the year ended December 31, 2007 and the six-month period ended June 30, 2008. Except as contemplated by the BT Receivables Agreement, there has not been, and none of Credit Parties have received notice of, any termination or cancellation of, or a materially adverse modification or change in, the business relationship with any of the 10 largest customers and suppliers, and, to the knowledge of Credit Parties, such customers and suppliers intend to renew their customer or supplier contracts, as applicable, in the ordinary course and on terms as favorable as those currently in place.

(l)Taxes. Borrowers represent and warrant that, each of the Credit Parties has filed all federal, state, and other tax returns and reports required to be filed, and have paid all federal, state, and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable.

(m)FCC Licenses, Etc. Except for any change of control or similar applications to be filed with respect to Vanco as described in Item 29 of the Addendum, Borrowers represent and warrant that, all FCC, state public utility commission and other required permissions and licenses are in good standing, and that Borrowers are not aware of any claim, purported claim or unrealized claim against the validity of the Borrowers’ ability to operate now and into the future under such existing licenses.

(n)Working Capital. Borrowers represent and warrant that after giving effect to the transactions contemplated in the Debenture Documents and this Agreement (i) the Borrowers, on a consolidated basis, have not less than (a) ($8,453,687) in Adjusted Working Capital and (b) not less than $6,000,000 in cash;  and (ii) the aging and collectability of the Borrowers' accounts receivable is in all material respects similar to the aging and collectability of the accounts receivable reflected by the financial statements delivered to Agent pursuant to Item 2(p) of the Addendum. 

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5. Collateral.

(a)Grant of Security Interest. To induce the Lenders to accept this Agreement and to make the Term Loan to Borrowers, each Borrower hereby grants to Agent, for itself and as agent for each Lender, a security interest in, and assigns, mortgages and pledges to Agent, for itself and as agent for any each Lender, all of such Borrower’s right, title and interest in and to all of such Borrower’s property (other than Excluded Equipment), whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising, including all of the following (collectively, the “Collateral”):

(i)all Accounts,Inventory, Equipment (other than Excluded Equipment), Goods, General Intangibles, Intellectual Property and Negotiable Collateral;

(ii)all investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts and all funds on deposit therein;

(iii)all chattel paper (whether tangible or electronic) and contract rights;

(iv)all guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

(v)all documents, books and records relating to any Collateral or to any Borrower’s business;

(vi)all Governmental Approvals and all proceeds from Governmental Approvals, but in each case only to the extent permitted under applicable law (including, without limitation, the Communications Act of 1934);

(vii)all other property of any Borrower now or hereafter in the possession or control of Agent or any of Agent’s Affiliates (including cash, money, credits and balances of any Borrower held by or on deposit with Agent or any Affiliate of Agent);

(viii)all other assets of any Borrower in which Agent receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody or control of Agent or any Affiliate of Agent;

(ix)all of each Borrower’s commercial tort claims listed on (A) Item 18 of the Addendum(which Borrowers represent and warrant is a true, accurate and complete list of all of each Borrower’s commercial tort claims as of the Agreement Date) or (B) any other writing provided to Agent pursuant to Section 7(g); and

(x)all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

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(b)Obligations. Such grant, assignment, mortgage and transfer is made for the purpose of securing, and the Collateral secures and will continue to secure, all of the Obligations; provided that upon satisfaction of all Obligations other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement, the Lenders shall release any Liens in the Collateral.

(c)Excluded Equipment. Borrowers agree that Agent shall automatically have a security interest in the Excluded Equipment promptly after receiving any Governmental Approvals required for the lawful grant of such security interest. Borrowers agree to execute and deliver to Agent such security agreements and other documents confirming such grant as Agent may reasonably request, but any failure to do so shall not limit Agent’s security interest therein pursuant to the first sentence of this paragraph. Each Borrower represents and warrants to Agent that it does not own any Excluded Equipment.

6.Financial Covenants. Unless the Required Lenders shall otherwise consent in writing, the Borrowers, on a consolidated basis, shall comply with each of the financial covenants set forth on Item 19 of the Addendum.

7.Collateral Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 7, unless the Required Lenders shall otherwise consent in writing.

(a)Accounts. Borrowers will notify Agent promptly of and settle all Customer disputes, but, if Agent so elects while a Default exists, Agent will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and conditions as Agent deems advisable without incurring liability to any Borrower for Agent’s performance of such acts. Agent may, at any time and from time to time, contact Customers to verify Accounts and, while a Default exists, Agent may notify Customers of Agent’s security interest in the Accounts and instruct such Customers to pay such Accounts to one of the bank accounts listed on Item 14 of the Addendum. All of each Borrower’s books and records concerning Accounts and a copy of each Borrower’s general ledger will be maintained at the address of Borrowers’ chief executive office set forth on Item 11 of the Addendum. All Accounts will be, in all material respects and except as otherwise indicated in writing to Agent, bona fideand existing obligations of Customers arising out of the sale of goods and/or the rendering of services by Borrowers in the ordinary course of Borrowers’ business, owned by and owing to the applicable Borrower without defense, setoff or counterclaim, and will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens.

(b)Inventory. All Inventory will at all times be located at one of the Inventory locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum, will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens. Sales of Inventory will be made in compliance with all material requirements of applicable law.

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(c)Equipment. Borrowers will maintain all Equipment used or useful in Borrowers’ business in good and workable condition, ordinary wear and tear excepted, and, except for Excluded Equipment only for the first 90 days after the Agreement Date, subject to a perfected, first-priority security interest in Agent’s favor and free and clear of all other Liens (other than Permitted Liens), at one of the locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum.

(d)Defense of Title. All Collateral will at all times be owned by Borrowers, and Borrowers will defend Borrowers’ title to the Collateral against the claims of third parties. Borrowers will at all times keep accurate and complete records of the Collateral.

(e)Perfection; Further Assurances. No Borrower shall change its name, jurisdiction of organization, type of organization or organizational identification number; provided, however, that Vanco may change its name to “Global Capacity Direct, LLC” so long as Borrowers provide Agent with at least 5 Business Days’ notice of such name change. Borrowers will give Agent at least 30 days’ prior written notice of any change in the location of any Borrower’s principal place of business or chief executive office, any change in the locations of any Borrower’s Inventory or Equipment and any acquisition by any Borrower of any interest in real property. Each Borrower will, at Borrowers’ expense, promptly execute and deliver from time to time at Agent’s request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary or desirable to perfect or continue perfection of Agent’s security interest in Borrowers’ property or, at Agent’s request, to create and perfect a Lien on newly acquired real property. Borrowers will use all reasonable efforts to obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Agent’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers shall, immediately upon written request therefor from Agent, endorse and assign such Negotiable Collateral over to Agent and deliver actual physical possession of the Negotiable Collateral to Agent. Borrowers shall at any time and from time to time take such steps as Agent may request for Agent (i) to obtain an acknowledgment, in form and substance satisfactory to Agent, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Agent, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or chattel paper (including electronic chattel paper) in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Agent, (iii) to have Agent’s Lien noted on each certificate of title evidencing any Collateral, and (iv) otherwise to insure the continued perfection and priority of Agent’s security interest in any of the Collateral and of the preservation of its rights therein. Agent may, from time to time at Borrowers’ expense, obtain an appraisal on some or all of the Collateral; provided, however, that Borrowers shall not be required to reimburse Agent for more than one such appraisal per calendar year (it being understood that any such appraisal conducted while a Default exists shall not count against such one-per-year limitation).

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(f)Insurance. Borrowers will obtain and maintain in full force and effect insurance covering the Collateral against all customary risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such customary risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent, which policies will name Agent, for itself and each of the Lenders, as an additional insured and provide that loss thereunder will be payable to Agent as Agent’s interests may appear upon a loss payee endorsement reasonably acceptable to Agent. Borrowers will also obtain and maintain in full force and effect liability insurance and such other types of insurance as Agent may reasonably require (including business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent. All proceeds of any such insurance will be paid over to Agent directly, and Agent may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Agent determines or, in Agent’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Borrowers will provide to Agent on or prior to the Agreement Date and from time to time thereafter, certificates showing such coverage in effect and, at Agent’s request, the underlying policies.

(g)Commercial Tort Claims. If any Borrower shall at any time acquire a commercial tort claim, Borrowers shall immediately notify Agent in a writing signed by the applicable Borrower of the details thereof and grant to Agent, for itself and each of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

(h)Financing Statements. Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrowers or words of similar effect and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the applicable Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and each Borrower hereby ratifies and re-authorizes any such financing statement filed by Agent on or prior to the Agreement Date. Each Borrower agrees to furnish any such information to Agent promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Agent on behalf of any Borrower or filed by Agent without the signature of any Borrower and may be filed at any time in any jurisdiction. Each Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any Borrower as the debtor and Agent as the secured party without the prior written consent of Agent, and each Borrower agrees that it shall not do so without the prior written consent of Agent.

(i) Governmental Approvals.

(i)Each Borrower shall maintain in full force and effect all Governmental Approvals required by applicable law in order to operate such Borrower’s business, except for those Governmental Approvals, the absence of which could not reasonably be expected to result in a Material Adverse Effect. Borrowers shall promptly notify Agent in the event that any such license or approval is revoked or if any Borrower receives any notice from any licensing authority or other governmental authority which alleges that any Borrower is or may be in violation of any applicable law, rule, regulation or licensing requirement.

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(ii)Borrowers shall, as described below, act immediately, upon notice of a Default, to permit Lender to realize the full value of foreclosure on the Collateral, including, without limitation, by obtaining any and all regulatory approvals required to do so. For example, and without limitation of the foregoing, if the approval of the FCC or any state public service commission is required in connection with any action taken by the Agent or any Lender (including any of their respective agents, officers, and attorneys) in the exercise of their rights and remedies hereunder with respect to the Collateral, in order to facilitate the intended realization of the value of the Collateral the Borrowers shall immediately and in no event later than three (3) Business Days following notice thereof take such action as is requested by Lender or Agent to obtain each and any approval required to allow a Lender the full benefit of the Collateral and Borrowers shall diligently pursue the obtaining of such approvals until obtained in accordance with the instructions of Agent or a Lender and applicable law. For avoidance of doubt, and by way of example, immediately upon notice thereof, Borrowers shall or shall cause their counsel to prepare, or at the option of Agent or a Lender to cooperate with counsel of Agent or a Lender in preparing, relevant applications to the FCC and each applicable state public service commission to seek approval of a substantial transfer of control of the applicable Borrower or its licenses and authorizations as instructed by Agent or a Lender, or to do any other action to protect for a Lender the value of the applicable Borrower’s licenses and authorizations. Without diminution of the foregoing, the Borrowers shall, immediately following the occurrence of a Default which is continuing, upon the written request and instructions of the Agent, execute and deliver (or cause the execution and delivery of) all relevant applications, certificates, instruments, agreements and other documents to the FCC or the applicable state public service commission, or at the option of Agent or a Lender, to Agent or a Lender for filing with Borrowers’ cooperation, which are required to be filed in connection with obtaining any required approval of the FCC or any state public service commission and take such other action as the Agent may request in connection therewith.

(j) Conduct of Business. The Borrowers shall conduct their business in substantially the same manner as currently conducted.

(k) Bank Accounts.

(i)The Borrowers (other than Magenta) will maintain their principal accounts for operation, administration, cash management and other deposit accounts for the conduct of the Borrowers’ business with the Depository Bank. On or prior to the Agreement Date, the Borrowers will establish and maintain (so long as the Obligations are outstanding), the Private Bank Account Control Agreement, which shall be applicable to all bank accounts of the Borrowers, other than the bank account maintained by Magenta in the United Kingdom and the account subject to the HSBC Account Control Agreement.

(ii) Magenta will maintain a single bank account (as disclosed to Agent on Item 14 of the Addendum) with HSBC Bank plc (the “Magenta Account”). On or prior to the Agreement Date, Magenta will establish and maintain (so long as the Obligations are outstanding), the Magenta Three-Party Account Agreement, pursuant to which all amounts deposited in the Magenta Account in excess of £75,000 shall automatically be transferred (on a daily basis if applicable) to the account of Borrowers identified in the Magenta Three-Party Account Agreement which is subject to the HSBC Account Control Agreement.

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(l)Employment Agreements. The non-compete provisions contained in the Employment Agreements shall remain in full force and effect and shall not be amended, modified or waived without the Agent’s written consent.

8.Negative Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 8, unless the Required Lenders shall otherwise consent in writing.

(a)No Merger or Disposition of Assets. No Borrower will merge or consolidate with any other Person, or purchase all or substantially all of the assets of any other Person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of such Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, each Borrower may make Permitted Dispositions.

(b)No Debt or Liens; Taxes. No Borrower will obtain or attempt to obtain from any Person other than Agent any loans, advances, or other financial accommodations or other Indebtedness of any kind, nor will any Borrower enter into any direct or indirect guaranty of any obligation of another Person, other than Permitted Indebtedness. No Borrower will permit any of its assets to be subject to any Lien other than Permitted Liens. Each Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrowers will, upon request by Agent, promptly furnish Agent with proof satisfactory to Agent that Borrowers have made such payments and deposits.

(c)No Distributions; Payments on Subordinated Debt. No Borrower will retire, repurchase or redeem any of such Borrower’s Stock in such Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of Stock) to any owner or holder of such Borrower’s Stock; provided, however, that any Borrower may pay cash dividends or distributions to any other Borrower which owns such Borrower’s Stock. No Borrower will refinance, repurchase, defease or make any payment on any Subordinated Debt, other than payments expressly permitted by the Debenture Intercreditor Agreement or subordination provisions applicable to such Subordinated Debt.

(d)No ERISA Liabilities. Borrowers will make timely payments of all contributions required to meet the minimum funding standards for Borrowers’ employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Agent the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by any Borrower of any governmental notice (other than routine requests for information) in respect of any such plan.

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(e)Transactions with Affiliates. No Borrower will engage in any transaction with any of such Borrower’s or any other Borrower’s officers, directors, employees or other Affiliates, except for an “arms-length” transaction on terms no less favorable to such Borrower than would be granted to such Borrower in a transaction with a Person who is not an Affiliate of any Borrower, which transaction shall be approved by such Borrower’s disinterested directors or managers and shall be disclosed in a timely manner to Agent prior to the consummation of the transaction.

(f)Loans/Investments. No Borrower will make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit to customers in the ordinary course of business; and (ii) Permitted Investments. No Borrower shall purchase, acquire or otherwise invest in any Person except Permitted Investments and investments in other Borrowers; provided, however, that the aggregate amount of intercompany advances and other transfers to Magenta by the other Borrowers shall not exceed the actual cash expenses of Magenta, which such actual cash expenses shall be in the ordinary course and consistent with past practices of Magenta. Without limiting the generality of the foregoing, no Borrower shall create any new subsidiary or make loans to, transfer any money or other assets to or otherwise invest in any subsidiary unless such subsidiary is or becomes a Borrower hereunder pursuant to documentation acceptable to Agent in its reasonable discretion.

(g)Capital Expenditures. Borrowers shall not make or incur capital expenditures in excess of the amount set forth on Item 21 of the Addendum during any fiscal year, determined for all Borrowers on a consolidated basis.

(h)Compensation. Borrowers shall not increase the total compensation paid to their officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year of Borrowers in an aggregate amount for all such officers and directors in excess of the limit specified in Item 22 of the Addendum.

(i)Amendments of Documents. No Borrower shall amend or modify (i) any Acquisition Document or any other note, instrument or agreement in connection with the Acquisition without the prior written consent of Agent, (ii) its articles or certificate of incorporation, articles or certificate of organization, by-laws, limited liability company agreement or other constituent documents, or (iii) any Debenture Document or any other note, instrument or agreement in connection with any other Subordinated Debt without the prior written consent of Agent; provided, however, that Borrowers may amend the Debenture Documents without the consent of the Agent to the extent expressly permitted by the Debenture Intercreditor Agreement.

(j)Capitalized Leases. The Borrowers, taken as a whole, shall not incur greater than $500,000 in additional Capitalized Lease Obligations after the date hereof; providedfurther, that such Capitalized Lease Obligations shall be (i) on terms and conditions consistent with current market conditions for equipment of that kind, and (ii) solely for the purchase and/or lease of new pieces of or as a replacement of existing equipment.

(k)Use of Proceeds. Borrowers shall not use the proceeds of the Term Loan for any purpose other than (i) consummating the Acquisition, and (ii) general working capital purposes.

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(l)BT Receivable. Borrowers shall not compromise or settle any dispute, provide a discount, write-off, or waive collection of any part of the BT Receivable without the prior written consent of the Agent.

9. Reporting and Information.

(a)Financial StatementsBorrowers will submit to Agent as soon as available, and in any case not later than thirty (30) days after the end of each month, a balance sheet and a detailed statement of profit and loss by business unit and a statement of cash flows, in each case prepared in accordance with GAAP on a consolidated (and, if requested by Agent, consolidating) basis, certified by the chief financial or accounting officer of Parent as presenting fairly, in accordance with GAAP, Borrowers’ financial condition as of the last day of such month and Borrowers’ results of operations for such month and for the portion of Borrowers’ fiscal year ending with such month. Borrowers will also submit to Agent annual financial statements within 120 days after the end of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders’ equity, and a statement of cash flows, in each case prepared in accordance with the requirements set forth on Item 23 of the Addendum on a consolidated (and, if requested by Agent, consolidating) basis. Borrowers will also submit to Agent annually at least 60 days prior to Borrowers’ fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement on a consolidated (and, if requested by Agent, consolidating) basis. Together with each monthly and annual financial statement, Borrowers will deliver to Agent the certification of the chief financial or accounting officer of Parent in the form of Exhibit B attached hereto to the effect that Borrowers are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if Borrowers are not in compliance, describing the nature of any noncompliance and the steps Borrowers are taking or propose to take to remedy the same. Borrowers shall, promptly, upon request, furnish such other information concerning the condition, operations, financial or otherwise, of any Borrower as the Agent may from time to time request.

(b)Collateral Reports. Borrowers shall deliver to Agent within fifteen (15) days after the end of each month a report, reflecting the status as of the end of each month or for the month then ended, as the case may be, and certified by the Chief Executive Officer or Chief Financial Officer of Parent as being true and correct in all material respects, containing (i) a current detailed aging, by total and by Customer, of Borrowers’ Accounts, (ii) a current detailed aging, by total and by vendor, of Borrowers’ accounts payable, (iii) a schedule detailing loans and intercompany transfers to Magenta from any other Borrower, and (iv) a true, correct and complete copy of each new material contract entered into by any Borrower for the sale, lease or other provision of goods or services by such Borrower and for the lease or purchase of circuit capacity by any Borrower, all of which shall be set forth in a form and shall contain such information as is reasonably acceptable to Agent. At Agent’s request, Borrowers shall deliver such information more or less often than described above and such other information with respect to the Collateral, Borrowers or Borrowers’ business or financial condition as Agent may reasonably request from time to time.

(c)Tax Returns. Borrowers shall provide Agent with a copy of all federal tax returns of each Borrower no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

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(d)SEC Filings. Borrowers shall provide Agent with a copy of all reports and other filings made by Borrowers with the Securities and Exchange Commission no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

(e)BT Receivable. Borrowers will submit to Agent, promptly, and in any case not later than (i) one (1) day following each receipt of a BT Receivable Payment and (ii) two (2) Business Days after the end of each month, a reconciliation and report showing any amounts collected with respect of the BT Receivable, the amount left uncollected and, any issues, disputes and offsets with respect to collection of the BT Receivable, and such additional information with respect thereto as requested by Agent.

(f)Monthly Recurring Circuit Revenue and Recurring Circuit Margin. Borrowers will submit to Agent, as soon as available, and in any case not later than thirty (30) days after the end of each month, a summary of Monthly Recurring Circuit Revenue and Recurring Circuit Margin for the Strategic Sourcing Business Unit.

(g)Other Information. Borrowers will notify Agent as promptly as possible of any Default, any receipt by any Borrower of notice from any governmental authority that any Borrower has or may have violated any law, rule or regulation applicable to any Borrower or the terms or conditions of any permit or license any Borrower holds or is required to hold in connection with the conduct of such Borrower’s business, any amendment to any Borrower’s constituent documents and any change in any Borrower’s senior management, and the commencement of any material litigation, claim or action by or against any Borrower.

10. Inspection Rights; Expenses; Etc.

(a)Field Examinations; Inspections. Agent and any of the Lenders, shall have the right without hindrance or delay to conduct field examinations to inspect the Collateral, all other assets of Borrowers or any portion thereof, Borrowers’ books and records and all other aspects of Borrowers’ business, and to examine and make copies of Borrowers’ records, the Collateral and all other assets of Borrowers or any portion thereof, in each case wherever located, and Agent and any of the Lenders may enter upon each Borrower’s premises for such purposes, without notice, during business hours. Borrowers will assist Agent and any of the Lenders in whatever way necessary to make each such examination, and Borrowers agree to pay for such examinations as more fully described on Item 24 of the Addendum. Agent and any of the Lenders may discuss each Borrower’s financial condition with Borrowers’ independent accountants without liability to Agent or any of the Lenders or such accountants. Agent and any of the Lenders shall have full access to all records available to Borrowers from any credit reporting service, bureau or similar service and shall have the right to examine and make copies of any such records. Agent and any of the Lenders may exhibit a copy of this Agreement to such service and such service shall be entitled to rely on the provisions hereof in providing access to Agent and any of the Lenders as provided herein.

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(b)Performance by Agent. Agent may, from time to time at Agent’s option, perform any agreement of any Borrower hereunder which such Borrower fails to perform and take any other action which Agent deems necessary for the maintenance or preservation of any of the Collateral or Agent’s interest therein, and Borrowers agree to reimburse Agent immediately on demand for all of Agent’s expenses in connection with the foregoing (including, without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense is incurred until reimbursed by Borrowers.

11.Rights of Setoff, Application of Payments, Etc. Agent and any of the Lenders will be entitled to hold or set off all sums and all other property of any Borrower at any time to any Borrower’s credit or in Agent’s or any Lender’s possession (or the possession of any of Agent’s or Lender’s Affiliates) by pledge or otherwise or upon or in which Agent or any of the Lenders may have a Lien, as security for any and all of the Obligations. Recourse to the Collateral or other security for the Obligations will not at any time be required and each Borrower hereby waives any right of marshalling that such Borrower may have. Each Borrower’s obligation to pay or repay the Obligations is unconditional. Borrowers agree that, while a Default exists, Agent or any of the Lenders may take such action with regard to the custody and collection of Accounts as Agent or any of the Lenders may deem necessary. Each Borrower agrees that failure to take any action with regard to any given Account will not be unreasonable until and unless Agent receives a written request for specific action from Borrowers’ Agent with regard thereto and fails to respond thereto within a commercially reasonable time. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any of the Lenders from or on behalf of any Borrower, and each Borrower hereby irrevocably agrees that Agent or any of the Lenders shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or any of the Lenders against the Obligations, in such manner and in such order as the Lenders may deem advisable.

12.Attorney-in-Fact. Each Borrower hereby appoints and constitutes Agent as such Borrower’s attorney-in-fact: (a) at any time, (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Agent’s possession and to deposit or otherwise collect the same; (ii) to send verifications of Accounts to Customers; and (iii) to execute in such Borrower’s name any financing statements, affidavits and notices with regard to any and all Lien rights; and (b) while any Default exists, (i) to receive, open, and dispose of all mail addressed to such Borrower; (ii) to notify the postal authorities to change the address and delivery of mail addressed to such Borrower to such address as Agent may designate; (iii) to sign such Borrower’s name on any invoice or bill of lading relating to the Collateral, on drafts against Customers, and notices to Customers; (iv) to sign any agreement or certificate in connection with any insurance policy of any Borrower (including all documentation to receive benefit payments thereunder and to cancel such insurance policy and receive a refund of the unearned premium with respect thereto); and (v) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Agent has any commitment to Borrowers under this Agreement or otherwise (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and other than inchoate indemnification obligations and obligations under the warrant and the registration rights agreement).

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13. Defaults and Remedies.

(a)Defaults. For purposes of this Agreement, “Default” means the occurrence of any of the following events: (i) non-payment when due of any amount payable on any of the Obligations (in the case of non-payment of interest only, including, but not limited to any non-payment of PIK Interest pursuant to Section 3(b), if such non-payment continues one (1) Business Day after the date when due and for the avoidance of doubt, the default margin identified on Item 4 of the Addendum shall be applicable during the non-payment period); (ii) breach of any covenant or failure to perform any agreement or failure to meet any of any Credit Party’s obligations contained herein, in any other Loan Document or in any agreement out of which any of the Obligations arose if such failure continues for five (5) Business Days (excluding Sections 8, 9, 7(f), and 7(k), where no cure period shall be applicable); (iii) any statement, representation, or warranty made in writing in this Agreement, in any other Loan Document or in any other writing or statement at any time furnished or made or deemed furnished or made by any Credit Party to Agent proves to have been untrue in any material respect as of the date furnished or made or deemed furnished or made; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debenture Documents, or any Borrower’s default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 25 of the Addendum (after giving effect to any applicable notice and cure period); (v) suspension of the operation of any Borrower’s present business; (vi) any Borrower becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against any Borrower; (vii) entry of any judgment in excess of the amount set forth on Item 26 of the Addendum against any Borrower or creation, assertion, or filing of any judgment or tax Lien against the property of any Borrower, in each case which remains undischarged for thirty (30) days after such entry or filing; (viii) death or withdrawal of any partner of any Borrower which is a partnership, or dissolution, merger, or consolidation of any Borrower which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any Borrower; (x) sale, transfer or exchange, either directly or indirectly, of a controlling Stock interest of any Credit Party (without limiting the generality of the foregoing, a Default shall exist if (A) Parent shall cease to own, directly or indirectly, 100% of the Stock of any other Borrower or cease to have direct or indirect voting control of any other Borrower (excluding Vanco until the Final Closing), (B) any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty-five percent (25%) of the voting power of all classes of stock of Parent; (xi) appointment of a receiver for any of the Collateral or for any other property in which any Credit Party has an interest; (xii) seizure of any Collateral by any Person other than Agent; (xiii) any person identified on Item 27 of the Addendum shall for any reason cease to hold the office of the applicable Borrower set forth opposite such person’s name on Item 27 of the Addendum (or any such person shall cease to perform the duties generally associated with such office) and a replacement reasonably satisfactory to Agent shall not be appointed within 90 days; (xiv) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a Material Adverse Effect; (xv) payment by any Borrower on the Debenture Indebtedness or any other Subordinated Debt in violation of the Debenture Intercreditor Agreement or any other applicable subordination agreement; (xvi) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any Borrower’s employee pension benefit plans; (xvii) any event of default shall occur under (after giving effect to any applicable notice and cure period) under the Acquisition Documents (other than a termination of the Management Agreement as a result of the Final Closing); (xviii) the Final Closing shall have not occurred by ninety-one (91) days from the Agreement Date; or (xix) except for Transfer Applications (as such term is defined in the Interest Purchase Agreement) to be approved by the applicable regulatory authorities in California, Pennsylvania and Tennessee (which such Transfer Applications shall in any event be approved within one hundred twenty (120) days), any Transfer Application shall not have been approved by the earliest to occur of (A) expiration of the STA Requests unless replaced by a permanent authorization and (B) ninety (90) days from the date of this Agreement.

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(b)Remedies. If a Default occurs and is continuing, in each case without demand or notice to any Borrower, any other Credit Party or any other Person (unless such notice is expressly required hereunder or under applicable law), the Required Lenders may authorize and instruct the Agent to do any one of the following on behalf of the Lenders, all of which such actions are, subject to any applicable law to the extent any such law may not be waived, permitted under this Agreement:

(i)declare the entire principal amount of the Term Loan outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

(ii)notify Customers that the Accounts have been assigned to Agent and that Agent has a security interest therein, collect them directly, and charge the collection costs and expenses to Borrowers’ loan account.

(iii)exercise any right or remedy available to any Borrower under one or more contracts of such Borrower and sell or otherwise dispose of any such contract.

(iv)(A) exercise any of its remedies under any other Loan Document, (B) apply any cash collateral to the Obligations (without limiting the foregoing, Agent may instruct any bank or other financial institution holding any cash, certificate of deposit or other Collateral to pay over such Collateral to Agent), and (C) draw on any letter of credit issued for the benefit of Agent in connection with this Agreement or any other Loan Document and apply the proceeds thereof to the Obligations.

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(v)make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral. Borrowers authorize Agent or any of the Lenders to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any Lien which in Agent’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

(vi)ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

(vii)without regard to any waste, adequacy of the security or solvency of any Borrower, apply for the appointment of a receiver of the Collateral, to which appointment each Borrower hereby consents, whether or not foreclosure or repossession proceedings have been commenced hereunder or under any other Loan Document and whether or not a foreclosure sale or secured party sale has occurred.

(viii)cancel any insurance policy of any Borrower in exchange for a refund of the unearned premium with respect thereto, and each Borrower hereby authorizes any insurance company which has issued any such policy to make such payment directly to Agent for application to the Obligations;

(ix)exercise any of the remedies available to Agent as a secured party under the UCC as in effect in any applicable jurisdiction, or otherwise available to Agent under applicable law. Borrowers agree, upon demand by Agent or any of the Lenders, while a Default exists, to cease the sale or other disposition of the Collateral, except with Agent’s prior written consent, and to assemble at Borrowers’ expense all the Collateral at a convenient place acceptable to Agent. Agent may charge to Borrowers’ loan account and Borrowers will pay Agent upon demand all costs and expenses, including reasonable attorneys’ fees (including fees of attorneys that are regular salaried employees of Agent or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment, compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Agent or against any Borrower concerning any matter growing out of or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Agent pays any state, city, local, federal, or other tax or levy attributable to the Collateral (excluding taxes on income realized by Agent), Borrowers will repay to Agent the amount of tax so paid by Agent. Borrowers agree that Agent may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by Liens prior to Agent’s security interest. Borrowers will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Agent or any of the Lenders.

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(c)Notices. If any notice of intended disposition of the Collateral or of any other act by Agent is required by law or court order and a specific time period is not stated therein, such notice, if given five (5) Business Days before such disposition or act, in accordance with the provisions of Section 16(a), will be deemed reasonably and properly given.

(d)License. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and each Borrower agrees that all of its rights under all licenses and all franchise agreements shall inure to Agent’s benefit.

(e)Remedies Cumulative. Agent’s and any Lender’s rights and remedies under this Agreement and all other Loan Documents shall be cumulative. Agent and any of the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Agent or any of the Lenders of one right or remedy shall be deemed an election, and no waiver by Agent or any of the Lenders of any default on Borrowers’ part shall be deemed a continuing waiver. No delay by Agent or any of the Lenders shall constitute a waiver, election or acquiescence by it.

14. Agent.

(a)Appointment. Each Lender hereby irrevocably appoints and authorizes the Agent to perform the duties of the Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Term Loan outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to the Agent, and, subject to Section 2 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agent shall not have any liability to the Lenders for the Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Term Loan, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Term Loan and Agent Advances, for the Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Credit Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by the Agent of the rights and remedies specifically authorized to be exercised by the Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 14(c) of this Agreement, to take such action as the Agent deems appropriate on its behalf to administer the Term Loan and the Loan Documents and to exercise such other powers delegated to the Agent by the terms hereof or the other Loan Documents (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Term Loan), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of the Term Loan; provided, however, that the Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law.

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(b)Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the making and the continuance of the Term Loan hereunder and shall make its own appraisal of the creditworthiness of the Credit Parties and the value of the Collateral, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Term Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, the Agent shall provide to such Lender any documents or reports delivered to the Agent by the Credit Parties pursuant to the terms of this Agreement or any other Loan Document. If the Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender any time that the Required Lenders have instructed the Agent to act or refrain from acting pursuant hereto.

(c)Rights, Exculpation, Etc.The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agent (i) may treat the payee of the Term Loan as the owner thereof until the Agent receives written notice of the assignment or transfer thereof, pursuant to Section 16(f) hereof, signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including, without limitation, counsel to the Agent or counsel to the Credit Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counselor experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the Agent's Lien thereon, or any certificate prepared by any Borrower in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The Agent shall not be liable for any apportionment or distribution of payments made in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders.

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(d)Reliance.The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

(e)Indemnification. To the extent that the Agent is hot reimbursed and indemnified by any Credit Party, the Lenders will reimburse and indemnify the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including, without limitation, advances and disbursements made pursuant to Section 14(h); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from the Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 14(e) shall survive the payment in full of the Term Loan and the termination of this Agreement.

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(f)Agent Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of the Term Loan. The terms “Lenders” or “Required Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Required Lenders. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers as if it were not acting as the Agent pursuant hereto without any duty to account to the other Lenders.

(g)Successor Agent.

(i) The Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at least 30 Business Days' prior written notice to the Borrowers and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below.

(ii) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Agent, and the Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After the Agent's resignation hereunder as the Agent, the provisions of this Paragraph 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the other Loan Documents.

(iii) If a successor Agent shall not have been so appointed within said 30 Business Day period, the Agent shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above

(h)Collateral Matters.

(i) The Agent may from time to time make such disbursements and advances (“Agent Advances”) which the Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Term Loan and other Obligations or to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 16(j). The Agent Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate of interest then applicable to the Term Loan. The Agent Advances shall constitute Obligations hereunder. The Agent shall notify each Lender and the Borrowers in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation to its obligations pursuant to Section 14(e), each Lender agrees that it shall make available to the Agent, upon the Agent's demand, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to the Agent by such Lender, the Agent shall be entitled to recover such funds on demand from such Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Agent at the Default Rate.

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(ii) The Lenders hereby irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral upon termination of the Total Commitment and payment and satisfaction of the Term Loan and all other Obligations which have matured and which the Agent has been notified in writing are then due and payable; or constituting property being sold or disposed of in the ordinary course of Borrower's or any of its Subsidiaries' business or otherwise in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which neither Borrowers nor any of their Subsidiaries owned any interest at the time the Lien was granted or any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 14(h)(i).

(iii) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 14(h(ii)), each Lender agrees to confirm in writing, upon request by the Agent, the authority to release Collateral conferred upon the Agent under Section 14(h)(ii). Upon receipt by the Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Credit Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent and the Lenders upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Credit Party in respect of) all interests in the Collateral retained by Borrowers or any of their Subsidiaries.

(iv) The Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Credit Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent in this Section 14(h) or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein.

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(i)Agency for Perfection. Each Lender hereby appoints the Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and the Agent and each Lender hereby acknowledges that it holds possession of or otherwise controls any such Collateral for the benefit of the Agent and the Lenders as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. In addition, the Agent shall also have the power and authority hereunder to appoint such other sub-agents as may be necessary or required under applicable state law or otherwise to perform its duties and enforce its rights with respect to the Collateral and under the Loan Documents. Borrowers by their execution and delivery of this Agreement hereby consents to the foregoing.

15.Indemnification.

(a)Borrowers jointly and severally agree to defend, indemnify, and hold harmless Agent and Agent’s and any of the Lender’s participants, directors, officers, employees, Affiliates, representatives, attorneys and agents (each an “Indemnified Person”) from and against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or threatened release of any hazardous materials in connection with any Borrower’s business on, at or from any property at any time owned or operated by any Borrower, including, without limitation, reasonable attorneys’ and consultants’ fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. Without limiting the foregoing and for purposes other than Capstone Investments, Borrowers represent and warrant that there has been no loan broker or investment banker involved in connection with the transactions contemplated hereby, and Borrowers agree to indemnify and hold Agent and any of the Lenders and their participants harmless from any claim of compensation payable to any loan broker or investment banker in connection with the transactions contemplated hereby.

(b)All payments by any Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any and all taxes other than income taxes imposed on Agent or any of the Lenders (“Indemnified Taxes”), unless such Taxes are required by law or the administration thereof to be withheld or deducted. If any Borrower, Agent or Lender or any participant is required by applicable law to deduct or pay any Indemnified Taxes in respect of any payment by or on account of any obligation of a Borrower hereunder or under any other Loan Document, then, if requested by Agent, any Lender or any participant, the sum payable shall be increased by that Borrower by such amount as is necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section), Agent and any of the Lenders and their participants receive an amount equal to the sum Agent and any of the Lenders and such participants would have received had no such deductions or payments been required.

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(c)Borrowers shall indemnify Agent, the Lenders and their participants, within 5 days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, any of the Lenders and their participants and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrowers’ Agent by Agent or any participant shall be conclusive absent manifest error.

(d)As soon as practicable after any payment of Indemnified Taxes by a Borrower to a governmental authority, Borrowers’ Agent shall deliver to Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

16.General Provisions.

(a)Notices. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile transmission, upon transmittal if confirmed by the sender’s facsimile device; provided that in the case of notices to Agent, Agent will be charged with knowledge of the contents thereof only when such notice is actually received by Agent. A telephonic notice to Agent as understood by Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. Notices to Agent or Borrowers will be sent to the addresses set forth on Item 28 of the Addendum, or any other address for Borrowers or Agent of which the other is notified by like notice.

(b)Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Term Loan payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the Term Loan payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Term Loan that is required for the Lenders or any of them to take any action hereunder, (iv) amend the definition of “Required Lenders” or “Pro Rata Share”, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents) or subordinate any Lien granted in favor of the Agent for the benefit of the Lenders (except as otherwise provided in this Agreement and the other Loan Documents), or release the Borrower or (vi) amend, modify or waive this Section 16(b) of this Agreement, in each case, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents.

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(c)No Waiver. No waiver hereunder will be valid unless in writing signed by Required Lenders (or by Agent at the request of the Required Lenders) and then only to the extent therein stated. No delay or failure on Agent’s or any Lender’s part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Agent’s or any Lender’s right to exercise any other right or remedy.

(d)Time of Essence. Time is of the essence of this Agreement.

(e)Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f)Assignments and Participations.

(i) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Credit Party and the Agent and each Lender and their respective successors and assigns; provided, however, that none of the Credit Parties may assign or transfer any of its rights hereunder without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void.

(ii) Each Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Term Loan made by it); provided, however, that (A) such assignment is in an amount which is at least $500,000 or a multiple of $100,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $500,000 or a multiple of $100,000 in excess thereof), (B) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, and such parties shall deliver to the Agent a processing and recordation fee of $5,000 (except the payment of such fee shall not be required in connection with an assignment by a Lender to an Affiliate of such Lender or Related Fund of such Lender), and (C) no written consent of the Agent shall be required in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Agent (or such shorter period as shall be agreed to by the Agent and the parties to such assignment), (1) the assignee thereunder shall become a “Lender” hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (2) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything contained to the contrary in this Section 16(f)(ii), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agent; provided, that (x) the Borrowers and the Agent may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned until such Lender and its assignee shall have executed and delivered an Assignment and Acceptance to the Agent for recordation and (y) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agent or any other Person shall not affect the legality, validity or binding effect of such assignment.

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(iii) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (A) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (B) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any of its Subsidiaries or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (C) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (D) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (E) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (F) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(iv) The Agent shall, on behalf of the Borrowers, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Term Loan (the “Registered Loans”) owing to each Lender from time to time. Other than in connection with an assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender shall maintain a register comparable to the Register.

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(v) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any promissory notes subject to such assignment, the Agent shall, if the Agent consents to such assignment and if such Assignment and Acceptance has been completed (A) accept such Assignment and Acceptance and (B) record the information contained therein in the Register.

(vi)A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register) (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register), together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same) on the Register, the Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.

(vii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the “Participant Register”). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(viii) Any foreign Person who purchases or is assigned or participates in any portion of such Registered Loan shall comply with Section 2(o).

(ix) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Term Loan made by it); provided, that (A) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (C) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (1) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Term Loan, (2) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Term Loan or the fees payable under this Agreement, or (3) actions directly effecting a release of all or a substantial portion of the Collateral or any Credit Party (except as set forth in Section 14(h) of this Agreement or any other Loan Document).

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(g)Governing Law; Submission to Jurisdiction, Service, Etc. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States Federal Court sitting in New York, New York or any New York state court sitting in New York, New York in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents, and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Each Borrower waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Parent at Borrowers’ address for notices pursuant to this Agreement, and service so made shall be deemed to be completed with respect to all Borrowers five (5) days after the same shall have been so deposited in the United States mails. Nothing herein shall limit the right of Agent or any of the Lenders to bring proceedings against any Borrower or any Affiliate of any Borrower in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent or any of the Lenders or any other holder of any Obligations, or any Affiliate of Agent or any of the Lenders or any other holder of any Obligations, involving, directly or indirectly, any matter in any way arising out of, related to or connected with any Loan Document shall be brought only in a United States Federal Court or New York state court sitting in New York, New York. Nothing in this Agreement shall be deemed or operate to affect the right of Agent or any of the Lenders to serve legal process in any other manner permitted by law or to preclude the enforcement by Agent or any of the Lenders of any judgment or order obtained in such forum or the taking of any action under this Agreement or any other Loan Document to enforce same in any other appropriate forum or jurisdiction.

(h)Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS, EACH LENDER AND AGENT HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. EACH BORROWER, EACH LENDER AND Agent ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

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(i)Waiver of Hearing. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING AGENT, ANY OF THE LENDERS, THEIR SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH Agent OR ANY OF THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT, IF Agent OR ANY OF THE LENDERS FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW.

(j)Expenses. Borrowers shall pay on demand all of Agent’s and any of the Lender’s costs and expenses in connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of this Agreement, including the reasonable fees and out-of-pocket expenses of Agent’s and any of the Lender’s counsel, in each case whether incurred on, prior or subsequent to the Agreement Date. In addition, Borrowers shall pay any and all stamp and other taxes and recording and filing fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. All provisions in this Agreement providing for the payment or reimbursement of Agent’s or any of the Lender’s attorneys’ fees and expenses include, without limitation, such fees and expenses incurred pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code.

(k)Execution in Counterparts; Execution by Fax or E-Mail; Waiver of Acceptance. This Agreement may be executed in separate counterparts, all of which shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail shall be equally as effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Any party delivering an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail also shall deliver an original executed counterpart of this Agreement or such other Loan Document, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement or such other Loan Document. To the fullest extent permitted by applicable law, each Borrower waives notice of Agent’s and any of the Lender’s acceptance of this Agreement and the other Loan Documents.

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(l)No Third-Party Beneficiaries. Except as expressly set forth herein, neither (i) any stockholder or owner of any other equity interest in any Borrower, (ii) any of Borrower’s employees or creditors (other than Agent and any of the Lenders and their Affiliates), nor (iii) any other Person claiming by or through any Borrower shall be entitled to rely on this Agreement or have any rights, remedies or claims against Agent or any of the Lenders or any Affiliates of them under or in connection with this Agreement.

(m)Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Agent, the Lenders and Borrowers and supersede all prior agreements and understandings relating to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the undersigned have executed this Term Loan and Security Agreement as of the day and year first above written.

Borrowers:

CAPITAL GROWTH SYSTEMS, INC.

By:

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:

Name:

Title:

CENTREPATH, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:

Name:

Title:

FNS 2007, INC.

By:

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL CAPACITY DIRECT, LLC

By:

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:

Name:

Title:

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Agent and Lender:

ACF CGS, L.L.C.

By:

Name:

Title:

EX-10.9 10 v132473_ex10-9.htm

SECURED TERM LOAN PROMISSORY NOTE

$8,500,000 November __, 2008 Chicago, Illinois

FOR VALUE RECEIVED, the undersigned, CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein collectively as the “Borrowers”), jointly and severally promise to pay to the order of ACF CGS, L.L.C., a Delaware limited liability company as administrative agent (the “Agent”), at the office of the Agent located at 570 Lexington Avenue, 40^th Floor New York, NY 10022 or such other office as the holder hereof may from time to time designate in writing, in lawful money of the United States of America and in immediate available funds, the principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), together with interest from and after the date hereof on the unpaid principal balance outstanding at a variable rate per annum as set forth in the Term Loan and Security Agreement dated as of even date herewith, between Agent, Borrowers and Lender and the other lenders from time to time party thereto (as amended from time to time, the “Term Loan Agreement”).

This Secured Term Loan Promissory Note (the “Note”) is issued pursuant to the Term Loan Agreement and is entitled to all of the benefits and security of the Term Loan Agreement. All of the terms, covenants and conditions of the Term Loan Agreement and the Loan Documents (as defined in the Term Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Term Loan Agreement.

The rate of interest in effect hereunder shall be calculated with reference to the Section 3, in the Term Loan Agreement. The interest due hereunder shall be computed in the manner provided in the Term Loan Agreement.

The principal and accrued interest on this Note shall be due and payable on the dates and in the manner set forth in the Term Loan Agreement.

Notwithstanding the forgoing, the entire unpaid principal balance and any accrued interest on this Note shall be due and payable immediately upon any acceleration of the indebtedness evidenced by this Note by the Lender pursuant to the Term Loan Agreement or upon any termination of the Term Loan Agreement.

This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2(c) of the Term Loan Agreement. Borrowers may also prepay this Note, in whole or in part, in the manner provided in Section 2(d)of the Term Loan Agreement.

Upon the occurrence of an Default, the Agent and the Lenders shall have all rights and remedies set forth in Section 13 of the Term Loan Agreement and the other Loan Documents.

Time is of the essence with respect to payments due under this Note. To the fullest extent permitted by applicable law, the Borrowers and every endorser and guarantor (if any) of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Agent or any of the Lenders in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Agent or any of the Lenders of any right or remedy preclude any other right or remedy. Agent or any of the Lenders, at their option, may enforce their rights against any collateral securing this Note without enforcing their rights against the Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrowers. The Borrowers agree that, without releasing or impairing Borrowers’ liability hereunder, Agent, for the benefit of the Lenders may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note.

THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESSES SPECIFIED IN ITEM 28 OF THE ADDENDUM TO THE TERM LOAN AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

2

IN WITNESS WHEREOF, the undersigned have executed this Note to be duly executed and delivered by an officer thereunto duly authorized as of the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:  

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:  

Name:

Title:

CENTREPATH, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:  

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:  

Name:

Title:

3

FNS 2007, INC.

By:  

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:  

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL

CAPACITY DIRECT, LLC

By:  

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:  

Name:

Title:

EX-10.10 11 v132473_ex10-10.htm

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (OR SUCCESSOR RULE THERETO) OR (III) UNLESS THE SALE, ASSIGNMENT OR TRANSFER MEETS THE REQUIREMENT OF REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

CAPITAL GROWTH SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:[_____]	Number of Shares: 12,000,000
	Date of Issuance:November ___, 2008

Capital Growth Systems, Inc., a Florida corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ACF CGS, L.L.C., a Delaware limited liability company, the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Twelve Million (12,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the "Warrant Shares") at the Warrant Exercise Price (as defined in Section 1(b) below. Notwithstanding anything to the contrary contained herein, prior to the “Amendment Date” as defined below, this Warrant shall only be exercisable into that number of Warrant Shares that are authorized and reserved for issuance hereunder. For purposes hereof, the “Amendment Date” shall be the first date after the date of this Warrant that the Company files articles of amendment to its articles of incorporation (the “Amendment”) with the Florida Secretary of State increasing its authorized Common Stock to an amount no less than 600,000,000 shares (before giving effect to any forward or reverse split that may occur on or before the date of such filing).

SECTION 1

(a)Loan and Security Agreement. This Warrant was issued pursuant to that certain Loan and Security Agreement, dated as of November__, 2008, by and among the Company, Global Capacity Group, Inc., a Texas corporation (“GCG”), Centrepath, Inc., a Delaware corporation (“Centrepath”), 20/20 Technologies, Inc., a Delaware corporation (“20/20 Inc.”), 20/20 Technologies I, LLC, a Delaware limited liability company (“20/20 LLC”), Nexvu Technologies, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), Magenta Netlogic Limited, a United Kingdom corporation (“Magenta”), Capital Growth Acquisition, Inc., a Delaware corporation (“CG Acquisition”), and Holder (as such agreement may be amended from time to time as provided in such agreement, the "Loan Agreement").

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i)“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which banks in New York, New York are otherwise closed for transacting business with the public.

(ii)"Common Stock" means (i) the Company's common stock, $0.0001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(iii)"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)"Expiration Date" means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(v)"Option" means any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(vi)"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

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(vii)"Principal Market" means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.

(viii)"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Holder, as such agreement may be amended, restated or modified and in effect from time to time.

(ix)"Securities Act" means the Securities Act of 1933, as amended.

(x)"Trading Day" means any day on which the Common Stock is traded on the Principal Market; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(xi)"Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xii)"Warrant Exercise Price" shall be equal to, with respect to any Warrant Share, $0.24, subject to adjustment as hereinafter provided.

(xiii)"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) ("Bloomberg") through its "Volume at Price" functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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SECTION 2. EXERCISE OF WARRANT

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of the Holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the second (2nd) Business Day (the "Warrant Share Delivery Date") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the "Exercise Delivery Documents"), (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC as they would relate to this Warrant, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the "Deemed Issuance Date"), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder's Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder. The Company shall cause at its sole and exclusive expense the investment banking firm to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm's determination or calculation, as the case may be, shall be deemed conclusive absent error.

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(b)If this Warrant is submitted for exercise, as may be required by Section 2(f), and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the "Warrant Delivery Date") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Loan Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall: (i) cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a); or (ii) cash damages accrue in the aggregate to an amount exceeding twelve percent (12%) of the product of the number of shares of Common Stock subject to this Warrant and the original Exercise Price for the Common Stock subject to this Warrant. Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Loan Agreement), 110% of the amount that (A) the Holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.

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(e)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

  B

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being exercised;

B = the arithmetic average of the Weighted Average Price of the Common Stock on each of the five (5) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(f)Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:

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ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

SECTION 3. COVENANTS AS TO COMMON STOCK

The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant; provided, however, that the Company shall effect the Amendment no later than 180 days following the date of this Warrant. Should the Company fail to effect the Amendment within such time period, then the number of shares to be purchased under this warrant shall be increased by 2% for each 30 day period thereafter that the Company fails to effect the Amendment.

(d)If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such securities exchange, or quotation system or market.

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(e)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.0001 per share, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets.

SECTION 4. TAXES

The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

SECTION 5. WARRANT HOLDER NOT DEEMED A SHAREHOLDER

No Holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

SECTION 6. REPRESENTATIONS OF HOLDER

The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.

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SECTION 7. OWNERSHIP AND TRANSFER

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement to the extent provided therein and the initial Holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement.

SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Warrant Date (as defined in Section 12), the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company), for a consideration per share less than a price (the "Applicable Price") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share; provided however, no such adjustment shall be made to the Warrant Exercise Price as a result of any "Exempted Issuance." For purposes hereof, "Exempted Issuance" means any issuance or deemed issuance of shares of Common Stock: (i) pursuant to an Approved Stock Plan, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed the greater of one percent (1.0%) of the number of outstanding shares of Common Stock at the end of the immediately preceding calendar year or the number of shares currently authorized for issuance pursuant to the Company’s 2008 Long Term Incentive Plan; or (ii) that is deemed to constitute an “Exempt Issuance” as that term is defined in the form of Securities Purchase Agreement dated on or about the date of this Warrant calling for the purchase of up to $10,500,000 of convertible debentures with warrants (the proceeds of which are to be used in part for the purchase of the limited liability company interests (“LLC Interests”) of Vanco Direct USA, LLC (the “Sub Debt Purchase Agreement”); (iii) the issuance of the securities subject to the Sub Debt Purchase Agreement or the issuance of securities with respect to a convertible note for up to $4,000,000 that may be issued to the seller of the LLC Interests to the Company; or (iv) that is pursuant to an “Excluded Transaction.” For purposes hereof, the term "Approved Stock Plan" means any employee benefit plan that has been approved by the Board of Directors and stockholders of the Company, pursuant to which shares of Common Stock may be issued solely to consultants, employees, officers and/or directors for services provided to the Company or any of its Subsidiaries (and not, for the avoidance of doubt, for equity capital raising purposes). For purposes hereof, an "Excluded Transaction" shall be any issuance of equity securities of the Company (or warrants, options, convertible rights or other rights to acquire equity securities): (A) to a provider of goods or services to the Company, in connection with an acquisition of a business or assets; or (B) in connection with the outstanding rights of any holder of an option, warrant or convertible security that is issued and outstanding on or before the date of this Warrant; provided that such option, warrant or convertible security is not amended or adjusted after the date of this Warrant to increase the number of securities into which it is convertible, exchangeable or exercisable or to decrease the exercise, exchange or conversion price. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

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(b)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price other than pursuant to an Excluded Transaction or Exempted Issuance), the following shall be applicable:

(i)Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

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(ii)Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed after the date of issuance of this Warrant in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at least as of any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price), the following shall be applicable:

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(i)Calculation of Consideration Received. In case any Options are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the Black-Scholes Value (as defined below) of such Options (the greatest of (I), (II) and (III), the "Option Consideration") and, for purposes of applying the provisions of this Section 8, the Option Consideration shall be allocated pro rata among all the shares of Common Stock issuable upon exercise of such Options to determine the consideration per each such share of Common Stock and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Common Stock represented thereby), less the Option Consideration. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

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(iii)Black-Scholes Value. The "Black-Scholes Value" of any Options shall mean the sum of the amounts resulting from applying the Black-Scholes pricing model to each such Option, which calculation is made with the following inputs: (i) the "option striking price" being equal to the lowest exercise price possible under the terms of such Option on the date of the issuance of such Option (the "Valuation Date"), (ii) the "interest rate" being equal to the Federal Reserve US H.15 T Note Treasury Constant Maturity 1 Year rate on the Valuation Date (as reported by Bloomberg through its "ALLX H15T" function (accessed by typing "ALLX H15T" [GO] on a Bloomberg terminal, and inserting the date of the Valuation Date and then looking at the row entitled "Treas Const Mat 1 Year" under the column entitled "Previous Value")), or if such rate is not available then such other similar rate as mutually agreed to by the Company and the Holder, (iii) the "time until option expiration" being the time from the Valuation Date until the expiration date of such Option, (iv) the "current stock price" being equal to the Weighted Average Price of the Common Stock on the Valuation Date, (v) the "volatility" being the 100-day historical volatility of the Common Stock as of the Valuation Date (as reported by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to zero. Within three (3) Business Days after the Valuation Date, each of the Company and the Holder shall deliver to the other a written calculation of its determination of the Black-Scholes Value of the Options. If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes Value of the Options within five (5) Business Days of the Valuation Date, then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Valuation Date. The Company shall cause such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after the Valuation Date. Such investment banking firm's calculation of the Black-Scholes Value of the Options shall be deemed conclusive absent error. The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

(d)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case:

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(i)the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the Holder shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the amount of the assets that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

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(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE

(a)In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder, without regard to any limitation on exercise thereof) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

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SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT

If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

SECTION 11. NOTICE

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company: Capital Growth Systems, Inc.

500 W. Madison - Suite 2060

Chicago, Illinois 60661

Attention: Chief Executive Officer

Facsimile: (312) 673-2422

with a copy to: Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Attention: Mitchell D. Goldsmith

Facsimile: (312) 527-3194

If to Holder: ACF CGS, L.L.C.

c/o Archer Capital Management

570 Lexington Avenue - 40^th Floor

NY, NY 10022

Attention: Gary Katz

Facsimile: 212-319-1033

With a copy to: Jeffrey H. Wolf, Esq.

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Facsimile No.: (310) 310-6001

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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SECTION 12. DATE

The date of issuance of this Warrant is the date first set forth above (the "Warrant Date"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

SECTION 13. AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW

The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York.

SECTION 15. RULES OF CONSTRUCTION

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) each accounting term not otherwise defined in this Warrant has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word "including" in this Warrant shall be by way of example rather than limitation.

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SECTION 16. NO EFFECT UPON LENDING RELATIONSHIP

Anything herein contained to the contrary notwithstanding, nothing contained in this Warrant shall affect, limit or impair the rights and remedies of Holder, any of its affiliates, or its successors and transferees, or any other lender in their respective capacities as lenders to the Company or any of its Subsidiaries (each, a "Subject Person") pursuant to any agreement under which the Company or any of its subsidiaries has borrowed money. Without limiting the generality of the foregoing, no Subject Person, in exercising its rights as a lender, shall have any duty to consider (i) its status as a direct or indirect shareholder or other equityholder of the Company, (ii) the interests of the Company or any of its subsidiaries, or (iii) any duty it may have to any other direct or indirect shareholder or other equityholder of the Company, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of __________, 2008.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THIS WARRANT

CAPITAL GROWTH SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.Form of Warrant Exercise Price. The holder intends that payment of the Warrant Exercise Price shall be made as:

____________a "Cash Exercise" with respect to ___________________ Warrant

Shares; and/or

____________a "Cashless Exercise" with respect to ______________ Warrant

Shares (to the extent permitted by the terms of the Warrant).

2.Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number (if electronic book entry transfer):

Date:

 Name of Registered Holder

 By:

 Name:

 Title:

A-1

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock & Transfer Company or the currently existing transfer agent if other than such entity ("Transfer Agent") to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by Transfer Agent.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Capital Growth Systems, Inc., a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated: ____________________, 200___

 Name:

 Title:

B-1

EX-10.11 12 v132473_ex10-11.htm

Exhibit 10.11

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November ____, 2008 between Capital Growth Systems, Inc., a Florida corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Administrator” means Vanco plc (in administration).

“Administrator Debenture” means the debenture in the form of Exhibit A-1 hereto, issuable to the administrator pursuant to the terms of the ILPA (as defined below) in the original principal amount of $3,000,000.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Archer Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and the Archer Purchasers in the form of Exhibit H-1 attached hereto

“Archer Purchasers” means the purchasers of the securities issued pursuant to the Loan and Security Agreement dated as of the date hereof by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Loan Agreement”).

“Authorized Share Approval” means (i) the vote by the stockholders of the Company to approve an amendment to the Company’s articles or certificate of incorporation that increases the number of authorized shares of Common Stock to at least 600,000,000 shares of Common Stock (the “Amendment”) and (ii) the filing by the Company of the Amendment with the Secretary of State of the State of Florida and the acceptance of the Amendment by the Secretary of State of the State of Florida.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

“Closing Statement” means the Closing Statement in the form Annex A attached hereto.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive Common Stock.

“Company Counsel” means Shefsky & Froelich, with offices located at 111 E. Wacker Drive, Suite 2800, Chicago, Illinois 60601.

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures” means the Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

2

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).

“Effective Date” means the earlier of (a) the effective date of a Registration Statement and (b) the date that all of Underlying Shares issuable pursuant to the Transaction Documents may be sold or are eligible for sale under Rule 144, without volume or manner-of-sale restrictions.

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder (including but not limited to any issuance of Common Stock with respect to the redemption of the Debentures and the debentures issued pursuant to the March Purchase Agreement or payment of any liquidated damages with respect to the Debentures, the Warrants and this Agreement and the debentures and warrants issued pursuant to the March Purchase Agreement) and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) for purposes of Section 4.12 only, an issuance of Common Stock or Common Stock Equivalents, without registration rights, for cash consideration, to the global carrier referenced in the Company’s press release dated February 20, 2008, provided, however, any such issuance of Common Stock Equivalents shall be expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (e) for purposes of Sections 4.12 and 4.13 only, securities (including shares of Common Stock, warrants and Common Stock Equivalents) issued in connection with the Archer Loan Agreement the terms of which are described in the Disclosure Schedules hereto and the Administrator Debenture.

3

“FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“March Purchase Agreement” means the Securities Purchase Agreement, dated March 11, 2008, by and among the Company and each of the purchasers signatories thereto for the issuance of debentures and warrants.

“March Purchasers” means the purchasers of the securities issued pursuant to the March Purchase Agreement and any successors in interest to any of the debentures and warrants issued pursuant to the March Purchase Agreement (by way of assignment or cancellation and reissuance of the same).

“March Purchasers Intercreditor Agreement” means the intercreditor agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and each of the March Purchasers in the form of Exhibit H-2 attached hereto

“March Registration Rights Agreement” means the Registration Rights Agreement, dated March 11, 2008, by and among the Company and each of the March Purchasers.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

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“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.65.

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

“Registration Statement” means a registration statement filed pursuant to Section 4.18, registering the resale, by the Purchasers, of all of the Underlying Shares, or any portion thereof.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit E attached hereto.

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“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees, the Intercreditor Agreement, and any other documents and filing required thereunder in order to grant the Purchasers a security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds or, with respect to (i) Aequitas Catalyst Fund, LLC - Series C (“Aequitas”), through the conversion of its bridge note dated September 29, 2008, in the original principal amount of $500,000 (the “Aequitas Note”) to a debenture and warrant hereunder and (ii) Capstone Investments (“Capstone”), through the irrevocable waiver of its right to all or a portion of its cash fee of 7% of the cash proceeds hereunder and under the Archer Loan Agreement.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F attached hereto.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

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“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Security Agreement, the Subsidiary Guarantee, the Archer Intercreditor Agreement, the March Purchasers Intercreditor Agreement, the Voting Agreement, the Consent, Waiver and Amendment Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current transfer agent of the Company with a mailing address of 17 Battery Place, New York, New York 10004 and a facsimile number of 212-509-5150, and any successor transfer agent of the Company.

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures.

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

“Voting Agreement” means the written agreement, in the form of Exhibit G attached hereto, of all of the officers, directors, and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favor of the Authorized Share Approval, amounting to, in the aggregate, at least 50.1% of the issued and outstanding Common Stock.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years from the date of the Authorized Share Approval, in the form of Exhibit C attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to $17,325,000, in the aggregate, in principal amount of the Debentures (with an aggregate Subscription Amount of up to $10,500,000). Each Purchaser shall deliver to the Company via wire transfer or a certified check, immediately available funds equal to its cash Subscription Amount (and, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement) and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the parties shall mutually agree.

2.2Deliveries.

(a)On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii)a legal opinion of Company Counsel, in substantially the form of Exhibit D attached hereto;

(iii)a Debenture with a principal amount equal to such Purchaser’s Subscription Amount multiplied by 1.65, registered in the name of such Purchaser;

(iv)the Voting Agreements, duly executed by all officers, directors and 10% stockholders of the Company;

(v)a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 75% of such Purchaser’s Subscription Amount divided by $0.24, with an exercise price equal to $0.24, subject to adjustment therein;

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(vi)the Security Agreement, duly executed by the Company, VDUL (as defined below) and each Subsidiary, along with all of the Security Documents (including, without limitation, documents and agreements evidencing the Purchasers’ security interest in the assets of the Company’s Subsidiary that is organized in the UK), including the Subsidiary Guarantee, duly executed by the parties thereto;

(vii)the Archer Intercreditor Agreement, duly executed by the Company and the Archer Purchasers; and

(viii)the March Purchasers Intercreditor Agreement, duly executed by the Company and each of the March Purchasers.

(b)On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s cash Subscription Amount by wire transfer to the account as specified in writing by the Company (or, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement);

(iii)the Security Agreement duly executed by such Purchaser;

(iv)the Archer Intercreditor Agreement duly executed by such Purchaser; and

(v)the March Purchasers Intercreditor Agreement duly executed by such Purchaser.

2.3Closing Conditions.

(a)The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

(iii)the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

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(b)The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii)the delivery of a lock-up agreement, in the form attached hereto as Exhibit J, duly executed by each of the Administrator and Capstone, the Company and the Transfer Agent;

(iv)all existing debtholders of the Company and its Subsidiaries, with the exception of the Excepted Debtholders, as that term is defined herein (each, an “Existing Debtholder” and together, the “Existing Debtholders”), shall each have executed and delivered to the Purchasers an agreement whereby each Existing Debtholder shall agree, that all amounts owed to it shall not mature or require payments of any nature prior to the repayment of all amounts due under the Debentures, and whereby such indebtedness is made expressly subordinate in right of payment to the indebtedness evidenced by the Debentures, as reflected in a written agreement reasonably acceptable to, and approved by, the Purchasers. The term the Excepted Debtholders includes the March Purchasers, the Archer Purchasers and such other debtholders described on Schedule 2.3(b)(iii)attached hereto (together, the “Excepted Debtholders”);

(v)the delivery of a consent, waiver and amendment agreement, in the form attached hereto as Exhibit I duly executed by each March Purchaser (the “Consent, Waiver and Amendment Agreement”);

(vi)the Interest and Loan Purchase Agreement (“ILPA”) among Capital Growth Acquisition, Inc. (“Acquisition”), Vanco Direct USA, LLC (“VDUL”) and the Administrators for the estate of Vanco, plc (“Administrators”) shall have been duly executed on terms and conditions described in the Disclosure Schedules hereto, and the transactions consummated thereunder shall have been consummated subject only to the conveyance of the VDUL limited liability company interest, which shall be subject only to certain post-closing state regulatory filings described on Schedule 3.1(m)(A) hereto or the passage of time as further described on the Disclosure Schedules hereto;

(vii)the closing of the Archer Loan Agreement, with gross proceeds of not less than $8,500,000 to the Company and its Affiliates, shall have been consummated prior to or contemporaneous with the Closing hereunder on terms and conditions described in the Disclosure Schedules (provided, the aggregate principal amount of the Senior Debt shall not exceed $10,500,000), and the Company shall have delivered evidence thereof to the Purchasers;

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(viii)there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

(ix)from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

(a)Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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(c)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(d)No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents and the consummation by it to which it is a party of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) the filings set forth in Schedule 3.1(e) required under the ILPA to obtain necessary FCC and state commerce commission approvals to the change in control of VDUL (collectively, the “Required Approvals”).

(f)Issuance of the Securities. The Securities (other than the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Subject only to the Authorized Share Approval, the Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

(g)Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act or as reflected on Schedule 3.1(g). Except as set forth on Schedule 3.1(g)(i), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g)(ii), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth on Schedule 3.1(g)(iii), no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as described on Schedule 3.1(h), the Company has never been an issuer subject to Rule 144(i) under the Securities Act. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Material Changes. Other than as set forth on Schedule 3.1(i), since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice or in connection with the transaction contemplated by this Agreement and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement and the other transactions contemplated by the Transaction Documents or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

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(j)Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as set forth on Schedule 3.1(j). There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(k)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. Except as disclosed on Schedule 3.1(k), the Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(l)Compliance. Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(m)Regulatory Permits. Except as disclosed on Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n)Title to Assets. Except for the liens set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

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(o)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(p)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in the amount of $10.0 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q)Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

(r)Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on Schedule 3.1(r), the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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(s)Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, except as set forth on Schedule 3.1(s). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(t)Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

(v)Registration Rights. Other than the persons specified on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

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(w)Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(x)Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(y)Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Archer Loan Agreement and the ILPA, the material terms of which are set forth on Schedule 3.1(y) (all of which shall be publicly disclosed contemporaneous with the disclosure of this Agreement as required by Section 4.6), the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

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(z)No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(aa)Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the projected cash flow of the Company from its future operations, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

(bb)Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

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(cc)No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(dd)Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ee)Accountants. The Company’s present accounting firm is Plante Moran. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act. The Company has advised that it is in the process of retaining a new accounting firm. The Company warrants that it shall retain a new accounting firm duly registered as a public accounting firm as required by the Exchange Act and that such new firm shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending December 31, 2008.

(ff)Seniority. Except for the Senior Debt, as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby), or as otherwise set forth on Schedule 3.1(ff).

(gg)No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and except as noted in Schedule 3.1(gg), the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

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(hh)Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(ii)Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

(jj)Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

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3.2Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)Organization; Authority. Such Purchaser if an entity, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which a Purchaser is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Notwithstanding the foregoing, Midsummer Investment Ltd. (“Midsummer”) has been approached by an institutional accredited investor that was introduced to Midsummer by the placement agent for this transaction (the “Potential Purchaser”) about purchasing a portion of its Securities purchased hereunder after the Closing in a private transaction.  Midsummer represents there are no present understandings or agreements to transfer any of its Securities to such Potential Purchaser, however, any such transfer otherwise in accordance with the provisions of Section 4.1(a) hereof shall in no way be deemed a breach of Midsummer’s representations and warranties hereunder or under any other Transaction Document.

(c)Purchaser Status. At the time such Purchaser was offered the Securities, such Purchaser was, and as of the date hereof such Purchaser is, and on each date on which such Purchaser exercises any Warrants or converts any Debentures such Purchaser will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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(d)Experience of Such Purchaser. Such Purchaser, either alone or together with his or its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

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(a)The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities , including, if the Securities are subject to registration pursuant to Section 4.18, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

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(c)Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including a Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if promptly after the Effective Date required by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144, without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)(i)In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the second Trading Day following the Legend Removal Date (the “Legend Removal Deadline”) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

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(ii)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.1(d)(i) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.1(d)(i) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Legend Removal Deadline, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(e)Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

4.2Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information; Public Information.

(a)If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60^th calendar day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. Upon a cashless exercise of the Warrant, the holding period for purpose of Rule 144 shall tack back to the original date of issuance of such Warrants.

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(b)At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(c)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.3(b) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.3(b) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Public Information Failure, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

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4.4Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5Conversion and Exercise Procedures. Each of the Purchasers agrees the he/she/it will not convert their Debenture or exercise their Warrant until such time as the Authorized Share Approval has occurred. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debenturesset forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.6Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with (i) any registration statement contemplated by Section 4.18 of this Agreement and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.7Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

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4.8Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

4.9Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.

4.10Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

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4.11Reservation and Listing of Securities.

(a)Following the Authorized Share Approval, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents at least equal to the Required Minimum as of such date.

(b)If, on any date after the date of the Authorized Share Approval, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

(c)The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing and (iv) maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

(d)In addition, the Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date following the date hereof, and in any event within 75 calendar days following the Closing Date, for the purpose of obtaining the Authorized Share Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. In addition, the Company agrees to use its best efforts to promptly respond to any comments the Commission may have with respect to any preliminary proxy statement. If the Company does not obtain the Authorized Share Approval at the first meeting, the Company shall call a meeting every 30 days thereafter to seek Authorized Share Approval until the earlier of the date the Authorized Share Approval is obtained or the Debentures and Warrants are no longer outstanding.

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4.12Participation in Future Financing.

(a)Other than the Senior Debt, from the date hereof until the date that the Debentures are no longer outstanding, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a combination of units hereof) (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

(b)At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

(c)Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5^th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

(d)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Participation Maximum, Company may effect the remaining portion of the Participation Maximum of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

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(e)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

(f)The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 Trading Days after the date of the initial Subsequent Financing Notice.

(g)Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

4.13Subsequent Equity Sales.

(a)From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, a Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

(b)From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

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(c)Unless and until the Authorized Share Approval is obtained, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents. So long as the Debentures or Warrants are outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $0.24 (subject to adjustment for forward and reverse stock splits, stock dividends and combinations and similar transactions affecting the Common Stock after the Closing Date). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(d)Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

4.14Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.15Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will execute any Short Sales during the period commencing with the Discussion Time and ending at such time the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6; provided, however, each Purchaser agrees, severally and not jointly with any other Purchasers, that they will not enter into any Net Short Sales (as hereinafter defined) from the period commencing on the Closing Date and ending on the date that is the earlier of (x) the 6-month anniversary of the Closing Date or (y) the date that such Purchaser no longer holds any Debentures.  For purposes of this Section 4.15, a “Net Short Sale” by any Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by such Purchaser.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by the Purchaser, Underlying Shares that have not yet been converted pursuant to the Debentures and Warrant Shares that have not yet been exercised pursuant to the Warrants shall be deemed to be held long by the Purchaser, and the amount of shares of Common Stock held in a long position shall be all unconvertedUnderlying Sharesand unexercised Warrant Shares (ignoring any exercise limitations included therein) issuable to such Purchaser on such date, plus any shares of Common Stock or other Common Stock Equivalents (other than the unconverted Underlying Shares and unexercised Warrant Shares described in this sentence) otherwise then held by such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

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4.16Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

4.17Capital Changes. Until the one year anniversary of the Effective Date, other than in connection with a Permitted Reverse Stock Split (as defined below), the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of the Common Stock that is approved on or before April 15, 2009 for purposes of satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and is effective contemporaneous with, or immediately prior to, the approval of the Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

4.18Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then, subject to SEC Guidance (as defined in the March Registration Rights Agreement) the Company shall send a written notice of such determination to each Purchaser and, if within

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ten calendar days after the date of delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such Registration Statement all or any part of the Underlying Shares as the Purchaser requests to be registered so long as such Underlying Shares are proposed to be disposed of in the same manner as those securities set forth in the Registration Statement, subject to pro rata cutback of the Purchasers (based upon the respective amounts of their Underlying Shares that are proposed for registration) and all other security holders proposed to be included in such Registration Statement, to the extent that all of the shares proposed for registration shall not be permitted due to SEC Guidance with respect to Rule 415. The Company shall use its best efforts to cause any Registration Statement to be declared effective by the Commission as promptly as is possible following it being filed with the Commission and to remain effective until all Underlying Shares subject thereto have been sold. All fees and expenses incident to the performance of or compliance with this Section 4.18 by the Company shall be borne by the Company whether or not any Underlying Shares are sold pursuant to the Registration Statement. The Company shall indemnify and hold harmless the Purchasers, the officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them, each person who controls the Purchasers (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the officers, directors, members, shareholders, partners, agents and employees of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any prospectus included therein or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 4.18, except to the extent, but only to the extent, that such untrue statements or omissions referred to in (i) above are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser’s proposed method of distribution of Underlying Shares and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto. The rights of the Purchasers under this Section 4.18 shall survive until all Underlying Shares have been either registered under a Registration Statement or been sold pursuant to an exemption to the registration requirements of the Securities Act.

4.19Removal of Subordination Legend. Following the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), within 3 Business Days of a written request from any Purchaser, the Company hereby agrees to issue such Purchaser a replacement Debenture, without the restrictive legend referencing the Archer Intercreditor Agreement, and otherwise in the same form of such Purchaser’s Debenture.

4.20Certain Permitted Payments under the Archer Intercreditor Agreement. In connection with “Permitted Payments” (as defined in the Archer Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder,no less than ten (10) days prior to the due date of such Quarterly Redemption Amounts (as defined in the Debentures) as described in such Section, the Company agrees to deliver each Purchaser a written certification of compliance with the financial covenants under the Archer Loan Agreement for the month prior to the date such Quarterly Redemption Amount is due, and, if requested in writing by a Purchaser and subject to Section 4.8 hereunder, calculations in reasonable detail evidencing compliance with such financial covenants.

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4.21Other Agreement(s). From the date hereof until the two year anniversary of the Closing Date, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents to Patrick Shutt, George King or Robert Pollan, or any of their respective Affiliates. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 21, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse Midsummer Capital, LLC (“Midsummer”) the non-accountable sum of $75,000 for its legal fees and expenses, $25,000 of which has been paid prior to the Closing. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

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5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

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5.10Survival. The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice.

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5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

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5.18Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FWS. FWS does not represent all of the Purchasers but only Midsummer. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

5.19Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.21Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

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5.22WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

CAPITAL GROWTH SYSTEMS, INC.	Address for Notice: Attention Chief Executive Officer 500 W. Madison St., Suite 2060 Chicago, Illinois 60661 Facsimile: 312-673-2422
By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice):
Shefsky & Froelich Ltd. 111 E. Wacker Dr., Suite 2800 Chicago, Illinois 60601 Facsimile: 312-275-7569

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO CGSY SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Principal Amount (Subscription Amount multiplied by 1.65): _____________

Warrant Shares: _________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

EX-10.12 13 v132473_ex10-12.htm

Exhibit 10.12

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENTS (AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November ___, 2008

Original Conversion Price (subject to adjustment herein): $0.24

$_______________

ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on the seven year anniversary of the Original Issue Date (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

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“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

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“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued and unpaid default interest.

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“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture issued to the Administrator, and (f) Magenta employee notes in the amount of approximately $87,000.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

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“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

“Quarterly Redemption Notice” shall have the meaning set forth in Section 6(a) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

¹ A*B-A/23, where A = the initial Subscription Amount and B = 1.65.

¹ A*B-A

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Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Authorized Share Approval until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)[Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.] [SECTION 4(c) TO BE REPLACED BY “[RESERVED]” WITH RESPECT TO AEQUITAS AND DAVID L.]]

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

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ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. After the Authorized Share Approval, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”).

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The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and, if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the March Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the March Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

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Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exists or occurs;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

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Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

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b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November___, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title
Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due November ___, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:  

Account No:  

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on November ___, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.13 14 v132473_ex10-13.htm

Exhibit 10.13

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Authorized Share Approvaldate (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the date the Authorized Share Approval is received and effective (the “Termination Date”) but not thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a Florida corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the date the Authorized Share Approval has been received and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

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b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise. If at any time after the earlier of (i) the six month anniversary of the date of the Purchase Agreement and (ii) the completion of the then-applicable holding period required by Rule 144, or any successor provision then in effect, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant until the Authorized Share Approval Date.The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. [This Section 2(d) to be replaced in Aequitas Warrant with “[RESERVED]”]

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e)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the seventh Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

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c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

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Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants that after the Authorized Share Approval is received, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders holding Warrants at least equal to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

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16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

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(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

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(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

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2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

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(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

S1-10

ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

2

3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

3

4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

*************************

4

[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

5

EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

4

7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

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(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

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EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.4

Exhibit 10.4

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of Vanco plc (in administration) (together with its permitted assigns, “Vanco”).

WITNESSETH:

WHEREAS, pursuant to that certain Interest and Loan Purchase Agreement, dated as of the date hereof, by and between Capital Growth Systems, Inc., a Florida corporation (the “Company”), Capital Growth Acquisition Inc., a wholly owned subsidiary of the Company (“CGAI”), Vanco and Vanco Direct USA, LLC, a wholly owned subsidiary of Vanco (“VDUL”) (the “Purchase Agreement”), in partial consideration for all of the outstanding membership interests of VDUL, the Company has agreed to sell and issue to Vanco the Company’s Variable Rate Convertible Debenture, due seven years following its issuance (the “Debenture”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debenture; and

NOW, THEREFORE, in consideration of the premises and to induce Vanco to enter into the Purchase Agreement and purchase the Debenture and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with Vanco as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Debenture and used herein shall have the meanings given to them in the Debenture. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Lien” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Vanco in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to Vanco, including, without limitation, all obligations under this Guarantee, the Debenture and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Vanco as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debenture and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debenture and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Subsidiary” means any direct or indirect subsidiary of the Company.

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to Vanco and its successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)The maximum liability of each Guarantor hereunder shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of Vanco hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by Vanco from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making Vanco whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Debenture.

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(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to Vanco and each Guarantor shall remain liable to Vanco for the full amount guaranteed by such Guarantor hereunder.

(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by Vanco, no Guarantor shall be entitled to be subrogated to any of the rights of Vanco against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by Vanco for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to Vanco by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for Vanco, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to Vanco in the exact form received by such Guarantor (duly indorsed by such Guarantor to Vanco, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Vanco may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by Vanco may be rescinded by Vanco and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by Vanco, and the Purchase Agreement and the Debenture and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as Vanco may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by Vanco for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Vanco shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by Vanco upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and Vanco, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or the Debenture, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by Vanco, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Vanco) which may at any time be available to or be asserted by the Company or any other Person against Vanco, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, Vanco may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by Vanco to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Vanco against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by Vanco upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to Vanco without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Vanco as of the date hereof:

(a) Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and Vanco shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Debenture prior to rendering their advice.

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4.Covenants. Each Guarantor covenants and agrees with Vanco that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debenture) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by Vanco.

(b)Notices. All notices, requests and demands to or upon Vanco or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. Vanco shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Debenture or Event of Default. No failure to exercise, nor any delay in exercising, on the part of Vanco, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Vanco of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Vanco would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse Vanco for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee, including, without limitation, the reasonable fees and disbursements of counsel to Vanco.

(ii)Each Guarantor agrees to pay, and to save Vanco harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save Vanco harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Debenture.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Debenture.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of Vanco and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of Vanco.

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(f)Set-Off. Each Guarantor hereby irrevocably authorizes Vanco at any time and from time to time while an Event of Default under the Debenture shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Vanco to or for the credit or the account of such Guarantor, or any part thereof in such amounts as Vanco may elect, against and on account of the obligations and liabilities of such Guarantor to Vanco hereunder and claims of every nature and description of Vanco against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, the Debenture or otherwise, as Vanco may elect, whether or not Vanco have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. Vanco shall notify such Guarantor promptly of any such set-off and the application made by Vanco of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Vanco under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which Vanco may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee represents the agreement of the Guarantors and Vanco with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by Vanco relative to subject matter hereof and thereof not expressly set forth or referred to herein.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

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(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)Vanco has no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee, and the relationship between the Guarantors, on the one hand, and Vanco, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and Vanco.

(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Debenture.

(o)[Reserved].

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, VANCO, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

[ADD NEW SUB]

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of Vanco pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and Vanco have entered into a Interest and Loan Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”), and in connection therewith, the Company issued to Vanco a variable rate convertible debenture having a principal amount of $3 million (the “Debenture”);

WHEREAS, in connection with the Debenture, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of Vanco;

WHEREAS, the Guarantee requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.5

Exhibit 10.5

CONSENT, WAIVER, AMENDMENT AND EXCHANGE AGREEMENT

THIS CONSENT, WAIVER, AMENDMENT AND EXCHANGE AGREEMENT (the“Agreement”), dated as of November ___, 2008, is entered into by and among Capital Growth Systems, Inc., a Florida corporation (the “Company”), and the persons identified as “Holders” on the signature pages hereto (the “Holders”). Defined terms not otherwise defined herein shall have the meanings set forth in the March Purchase Agreement (as defined below).

WHEREAS, pursuant to aSecurities Purchase Agreement, dated March 11, 2008 (the “March Purchase Agreement”), among the Company and the Holders, the Holders purchased from the Company an aggregate of $19,000,000 in principal amount of Variable Rate Secured Convertible Debentures of the Company (the “March Debentures”) and were issued warrants exercisable for shares of Common Stock (the “March Warrants”);

WHEREAS, pursuant to a Securities Purchase Agreement of even date herewith in the form attached as Exhibit A hereto (the “New Purchase Agreement”) among the Company and the purchasers identified on the signature pages thereto (collectively, the “New Investors”), the New Investors will be purchasing $14,891,250 in aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, due in 364 days and subject to automatic extension upon the final closing of the Company’s acquisition of beneficial ownership of Vanco Direct USA, LLC (“VDUL,” with the final closing being the “Final Closing”) to seven years from their issuance date (the “New Debentures” together with warrants to purchase shares of Common Stock (the offer and sale of such New Debentures and warrants pursuant to the New Purchase Agreement are hereafter referred to as the “New Financing”); and

WHEREAS, pursuant to a Loan and Security Agreement by and among the Company and its Subsidiaries and ACF CGS, L.L.C. as Agent for itself and/or other lenders (the “Archer Agreement”) of even date herewith in the form attached as Exhibit B hereto among the Company and the investor identified on the signature pages thereto (“Archer”), Archer will be lending the Company $8,500,000 pursuant to a secured promissory note due 364 days from issuance but subject to automatic extension as of the Final Closing to 24 months following its issuance (“Archer Note”) (the issuance of the Archer Note pursuant to the Archer Agreement is hereafter referred to as the “ Archer Financing”);

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Holder hereby agrees as follows:

1.Waivers. Subject to the terms and conditions hereunder, each Holder hereby waives compliance with the Company’s obligation to provide, and the Holder’s right to receive, notice of the New Financing in accordance with the time frames set forth in Section 4.12(b) of the March Purchase Agreement (it being understood that the waiver in this sentence shall in no way limit a Holder’s right to participate in such New Financing as set forth in Section 4.12 of the March Purchase Agreement), and each Holder hereby waives its right under Section 4.12 of the March Purchase Agreement to participate in the Archer Financing. In addition, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Sections 4.13(a) of the March Purchase Agreement and Sections 7(a) and 7(b) of the March Debentures with respect to the New Financing and agrees that such restrictions shall not apply to the issuance of the New Debentures pursuant to the New Financing. Further, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Sections 7(a) and 7(b) of the March Debentures with respect to the Archer Financing and agrees that such restrictions shall not apply to the issuance of the Archer Note pursuant to the Archer Financing. In addition, subject to the terms and conditions hereunder, each Holder hereby waives the restrictions set forth in Section 7(a) of the March Debentures with respect to the issuance of the Administrator Debenture (as defined in the New Purchase Agreement). Lastly, subject to the terms hereunder, each Holder hereby waives the restrictions set forth in Section 4.13(a) of the March Purchase Agreement with respect to (i) the issuance of 2,000,000 shares of Common Stock and warrants to purchase 15,000,000 shares of Common Stock to Salzwedel Financial Communications, Inc., (ii) warrants to purchase 1,500,000 shares of Common Stock to Aequitas Capital Management, Inc. and (iii) warrants to the placement agent for the New Financing to purchase that number of shares that would be purchasable with 7% of the cash investments (or cash equivalent value) from the New Financing, each as descried on the Disclosure Schedules to the New Purchase Agreement.

2. Amendments and other Agreements.

(a) Amended and Restated March Debentures.

(i)The Company hereby agrees to issue each Holder other than Hudson Bay Overseas Fund, Ltd. (“HBOF”) and Hudson Bay Fund, L.P. (“HBF”, and together with HBOF, collectively, “Hudson Bay”), in exchange for such purchaser’s March Debenture, an amended and restated debenture, in the form of Exhibit C attached hereto (the “Amended and Restated March Debenture(s)”) with a principal amount equal to the principal amount of such Holder’s current March Debenture multiplied by 1.77 minus any interest paid thereon through the date hereof. The individual principal amounts of the Amended and Restated March Debentures are as set forth on Schedule A attached hereto. Other than as amended thereunder, the rights and obligations of the Holders and of the Company with respect to the Amended and Restated March Debentures shall be identical in all respects to the rights and obligations of the Holders and of the Company with respect to the March Debentures and the Underlying Shares issued and issuable pursuant to the Purchase Agreement, subject to the understanding that the Company shall have the right to effect the Amendment within 75 days following the date of New Purchase Agreement, to the extent that it presently has not reserved sufficient authorized Common Stock underlying the Amended and Restated March Debentures due to the reset in the conversion price for the Amended and Restated March Debentures to $0.24 per share. For clarity, the March Purchase Agreement and all Transaction Documents thereunder are hereby amended so that the term “Debentures” includes the Amended and Restated March Debentures and the term “Underlying Shares” includes the shares of Common Stock issuable upon conversion and redemption thereof, and the term “Transaction Documents” shall be amended to include this Agreement. The Amended and Restated March Debentures are being issued in substitution for and not in satisfaction of the March Debentures, provided, however, the Holder acknowledges and agrees that upon the issuance and acceptance of the certificate evidencing its Amended and Restated March Debenture issued pursuant to this Section, the original certificate evidencing its March Debenture will be deemed cancelled.

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(ii)With respect to Hudson Bay, the Company agrees to issue, and Hudson Bay agrees to accept, in exchange for Hudson Bays’ respective Debentures and in full satisfaction of any legal fee reimbursement owing to Hudson Bay and all liquidated damages due and which may become due under the Registration Rights Agreement, the amended and restated debentures in the form attached as Exhibit C-2 attached hereto (the “Hudson Bay Amended and Restated March Debentures”), having principal amounts set forth on Schedule A attached hereto, which shall also be deemed to constitute Amended and Restated March Debentures for all purposes hereof, but shall have the differing economic rights as set forth below in Section 2(a)(iii). For clarity, the term “Debentures” in all of the Transaction Documents shall mean both the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures. All of the Holders hereby consent to the amendments to the Debentures set forth on the Amended and Restated Debentures attached hereto as Exhibits C-1 and C-2, respectively. The Hudson Bay Amended and Restated Debentures are being issued in substitution for and not in satisfaction of Hudson Bay’s March Debentures, provided, however, Hudson Bay acknowledges and agrees that upon the issuance and acceptance of the certificate evidencing the Hudson Bay Amended and Restated Debentures issued pursuant to this Section, the original certificate evidencing its March Debenture will be deemed cancelled.

(iii) Interest. All interest with respect to the Hudson Bay Amended and Restated March Debentures (including any future make whole payments that may be due thereunder) shall be satisfied in full with the payment of a cash sum equal to the sum of $915,202.59 (allocated pro rata among HBOF and HBO based upon the respective outstanding principal amounts of their respective March Debentures immediately preceding the date hereof), which sum reflects the remaining unpaid interest and make whole amount of the March Debentures, after giving effect to all prior payments of interest or make whole payments by the Company, and all liquidated damages due and which may become due under the Registration Rights Agreement (including for failure of the Company to register the shares of Common Stock underlying the Hudson Bay Amended and Restated March Debentures and the warrants issued to them under the March Purchase Agreement, but excluding any liquidated damages which may become due pursuant to Section 4 hereunder) shall be satisfied with the issuance of the Hudson Bay Amended and Restated March Debentures.

(b)Amendments to the March Purchase Agreement.

(i)The term “Exempt Issuance” in the March Purchase Agreement is hereby amended to add the following: shares of Common Stock issued and issuable with respect to the redemption of the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures and the New Debentures or payment of any liquidated damages with respect to the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures and the New Debentures, the New Purchase Agreement and the warrants issued pursuant to the New Purchase Agreement in each case pursuant to the terms thereof as in effect on the date of the New Purchase Agreement.

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(ii)The following is added as new Section 4.18 of the March Purchase Agreement:

“Notwithstanding anything to the contrary contained herein or in any Transaction Document, if at any time prior to the Senior Creditor Repayment (as defined in that certain subordination agreement among the Company, its Subsidiaries, the Purchasers, and ACF CGS, LLC and the other investors signatory thereto) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to any Transaction Document, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash under such Transaction Documents shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages under the Transaction Documents shall be equal to the least of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such liquidated damages become due, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(c)Consent to Certain Prior Acts. To the extent not previously executed and delivered, each Holder agrees to execute the waivers attached hereto as Exhibits D-1 and D-2with respect to (i) $500,000 bridge loan transaction with Aequitas Catalyst Fund, LLC and (ii) the restatement of the Company’s financial statements as evidenced by its 2008 Form 8-K filing made prior to the date hereof.

(d)Removal of Subordination Legend. Following the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), within 3 Business Days of a written request from any Holder, the Company hereby agrees to issue such Holder a replacement Amended and Restated March Debenture, without the restrictive legend referencing the Archer Intercreditor Agreement, and otherwise in the same form of such Holder’s Amended and Restated March Debenture.

(e)Certain Permitted Payments under the Archer Intercreditor Agreement. In connection with “Permitted Payments” (as defined in the Archer Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder, no less than ten (10) days prior to the due date of the applicable Quarterly Redemption Amounts (as defined in the Amended and Restated March Debentures) as described in such Section, the Company agrees to deliver each Holder a written certification of compliance with the financial covenants under the Archer Loan Agreement for the month prior to the date such Quartlery Redemption Amount is due, and, if requested in writing by a Holder and subject to Section 4.8 of the March Purchase Agreement, calculations in reasonable detail evidencing compliance with such financial covenants.

3.Representations and Warranties. The Company hereby makes to the Holders the following representations and warranties:

(a)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

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(b)No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material instrument (evidencing a Company or Subsidiary debt or otherwise) or other material understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(c)Issuance of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures. The Amended and Restated Debentures March Debentures and the Hudson Bay Amended and Restated March Debentures are duly authorized and, upon the execution of this Agreement by the Holders will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, as applicable, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares sufficient for the conversion in full of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures prior to giving effect to the reset provision contained therein, and the Company covenants to authorize a sufficient number of its shares of Common Stock by way of amendment to its articles of incorporation no later than 75 days following the date hereof (subject to extension as may be agreed to by the Holders of a majority of the outstanding principal amount of the Amended and Restated March Debentures).

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(d)Equal Consideration. No consideration has been offered or paid to any person to amend or consent to a waiver, modification, forbearance or otherwise of any provision of any of the Transaction Documents.

(e)Survival and Bring Down. All of the Company’s warranties and representations contained in this Agreement shall survive the execution, delivery and acceptance of this Agreement by the parties hereto. The Company expressly reaffirms that, except as set forth in the Disclosure Schedules to the New Purchase Agreement, each of the representations and warranties set forth in the March Purchase Agreement, continues to be true, accurate and complete, and the Company hereby remake and incorporate herein by reference each such representation and warranty as though made on the date of this Agreement.

(f)Holding Period for Amended and Restated Debentures. Pursuant to Rule 144, the holding period of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures (and Underlying Shares issuable upon conversion and redemption thereof) shall tack back to the original issue date of the March Debentures. The Company agrees not to take a position contrary to this Section 3(f). The Company agrees to take all actions, including, without limitation, the issuance by its legal counsel of any necessary legal opinions (which may be satisfied pursuant to Section 5), necessary to issue to the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures (and Underlying Shares issuable upon conversion and redemption thereof) without restriction and not containing any restrictive legend without the need for any action by the Holder.

(g)No Novation. The Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures are being issued in substitution for and not in satisfaction of the March Debentures. The Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures shall not constitute a novation or satisfaction and accord of any of the March Debentures. The Company hereby acknowledges and agrees that the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures shall amend, restate, modify, extend, renew and continue the terms and provisions contained in the March Debentures and shall not extinguish or release the Company or any of its Subsidiaries under any Transaction Document (as defined in the March Purchase Agreement) or otherwise constitute a novation of its obligations thereunder.

(h)No Event of Default. The Company represents and warrants to each Holder that after giving effect to the terms of the waivers contemplated in this Agreement, no Event of Default (as defined in the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, as applicable) shall have occurred and be continuing as of the date hereof.

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4.Public Information Failure Payments. As a result of the changes made to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”) which are effective February 15, 2008, the Company's obligations, pursuant to the Registration Rights Agreement, by and among the Company and each of the undersigned (the “Registration Rights Agreement”), to register the shares of Common Stock issuable upon conversion and/or exercise of the (i) Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures, including shares of Common Stock issued in lieu of cash redemptions thereunder, and (ii) the March Warrants (collectively, the “144 Eligible Securities”), are hereby suspended, so long as (a) the Company is in compliance with the current public information requirement under Rule 144 and (b) the Holder may sell the 144 Eligible Securities without any restriction or limitation under Rule 144 as of that date. In connection with the foregoing, the Company hereby covenants and agrees that at any time during the period commencing on the date hereof and ending at such time that all of the Underlying Shares can be sold without the requirement that adequate public information with respect to the Company be available as set forth in Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c)(1) and such failure exceeds the extension period afforded to the Company under Rule 12b-25 of the Exchange Act to file a report that is not filed within the time period prescribed for such report, provided the Company timely files a Form 12b-25 with the Commission (any such failure being referred to as a “Public Information Failure” and the Business Day immediately following the extension period afforded by Rule 12b-25 being referred to as the “Public Information Failure Date”), then, as partial relief for the damages to the Holder by reason of any such delay in or reduction of its ability to sell the Underlying Shares (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each such holder an amount in cash equal to two percent (2.0%) of the aggregate purchase price paid by such holder under each of the Purchase Agreement for any Securities then held by such holder on the Public Information Failure Date and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (y) the date such Public Information Failure is cured and (z) such date that the public information requirement set forth in Rule 144(c)(1) is no longer required pursuant to Rule 144. The foregoing payments to which a holder shall be entitled are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Public Information Failure Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full.

5.Legal Opinion. The Company hereby agrees to cause its legal counsel to issue a legal opinion to the undersigned Holders and the Company’s Transfer Agent regarding this Agreement and the transactions contemplated hereby, in form and substance reasonably acceptable to the Purchasers, including an opinion that the 144 Eligible Securities may be sold pursuant to Rule 144 without volume restrictions or manner of sale limitations as of September 11, 2008 and that certificates representing the 144 Eligible Securities issuable upon conversion of the Amended and Restated March Debentures or a “cashless exercise” of the Warrants may be issued without a restrictive legend as required pursuant to Section 4.1 of the March Purchase Agreement.

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6.Withdrawal of Registration Statement. Subject to the terms and conditions set forth herein, the Holders hereby agree that the Company can withdraw the registration statement filed pursuant to the Registration Rights Agreement, and agree that the Company shall not be required to file or maintain the effectiveness with respect to any Underlying Shares that are eligible for resale without volume or manner-of-sale restrictions so long as the Company is in compliance with the current public information requirements pursuant to Rule 144. As of the date hereof the Company satisfies the current public information requirement under Rule 144(c)(1).

7.Confirmation of Dilution Adjustment. In connection with the issuance of the securities in the New Financing, the Conversion Price of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures has been reduced to $0.24, subject to further adjustment therein, and the exercise price of the March Warrants has been reduced to $0.24, and the number of shares underlying the March Warrants has been increased in the individual amounts set forth on Schedule B attached hereto, each subject to further adjustment pursuant to the March Warrants.

8.Conversion Between Signing and Closing. In the event a Holder wishes to convert its March Debentures between the date hereof and the Closing Date (as defined in Section 9(a)), the Company shall convert the March Debentures pursuant to its existing terms of the March Debentures without giving effect to the terms of this Agreement, such that the aggregate principal amount subject to the exchange set forth in Sections 2(a)(i) and 2(a)(ii), as applicable, shall be reduced by the amount of such conversion.

9.Miscellaneous.

(a)The foregoing waivers shall not be effective unless and until: (i) all Holders shall have agreed to the terms and conditions hereunder, (ii) the New Investors and all of the Holders execute and deliver an Intercreditor Agreement in the Form of Exhibit C attached hereto, (iii) the Holders, the New Investors and Archer execute and deliver an Intercreditor Agreement in the Form of Exhibit D attached hereto and (iv) the Administrator (as defined in the New Purchase Agreement), the Company and its subsidiaries executed and deliver a subordination and intercreditor agreement in the Form of Exhibit E attached hereto. The waivers, agreements and obligations of the Holders set forth herein shall be null and void in the event the New Financing and the Archer Financing are not consummated on or before November 21, 2008 and the Company files a Current Report on Form 8-K with respect thereto by November 24, 2008. In addition, the respective obligations, amendments, agreements and waivers of the Holders hereunder are subject to the following conditions being met: (a) the accuracy in all material respects of the representations and warranties of the Company contained herein (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) and (b) the performance by the Company of all if its obligations, covenants and agreements required to be performed hereunder. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth herein. The Company shall, on or before 8:30 AM (NY time) on the 1^st Trading Day following the date hereof, issue a Current Report on Form 8-K, reasonably acceptable to the Holders, disclosing the material terms of the transactions contemplated hereby, and shall attach this Agreement and all other related agreements thereto, including, without limitation, the Amended and Restated March Debentures, the Hudson Bay Amended and Restated March Debentures, the Intercreditor Agreement, all material agreements under the Archer Financing and all “Transaction Documents” (as defined in the New Purchase Agreement (the “8-K Filing”). From and after the filing of the 8-K Filing with the Commission, the Holder shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall consult with the Holders in issuing any other press releases with respect to the transactions contemplated hereby.

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(b)This Agreement may be executed in two or more counterparts and by facsimile signature or otherwise, and each of such counterparts shall be deemed an original and all of such counterparts together shall constitute one and the same agreement.

(c)The Company has elected to provide all Holders with the same terms and form of agreement for the convenience of the Company and not because it was required or requested to do so by the Holders. The obligations of each Holder under this Agreement, and any Transaction Document are several and not joint with the obligations of any other Holder, and no Holder shall be responsible in any way for the performance or non-performance of the obligations of any other Holder under this Agreement or any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Holder pursuant thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or the Transaction Documents. Each Holder shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. Each Holder has been represented by its own separate legal counsel in their review and negotiation of this Agreement and the Transaction Documents.

(d)Except as set forth in the Transaction Documents (as defined in the New Purchase Agreement) and except for $43,325 that will be added to the principal amount of the Hudson Bay Amended and Restated March Debentures for Hudson Bay’s legal fees and expenses, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Amended and Restated March Debentures and the Hudson Bay Amended and Restated March Debentures.

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(e)If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

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IN WITNESS WHEREOF, this Agreement is executed as of the date first set forth above.

CAPITAL GROWTH SYSTEMS, INC.

By:_____________________________________

Name:

Title:

[signature page(s) of Holders to follow]

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COUNTERPART SIGNATURE PAGE

OF HOLDER TO

AMENDMENT AGREEMENT

AMONG CAPITAL GROWTH SYSTEMS, INC. AND

THE HOLDERS THEREUNDER

Name of Holder:___________________________________

By:______________________________________________

Name:____________________________________________

Title:_____________________________________________

EX-10.6 7 v132473_ex10-6.htm

Exhibit 10.6

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: March 11, 2008

$_______________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED

CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due November ___, 2009 (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Purchasers” , and such agreement,the “Archer Loan Agreement”).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

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“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

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“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

“Event of Default” shall have the meaning set forth in Section 8(a).

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“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued but unpaid default interest.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture (as defined in the November Purchase Agreement) issued to the Administrator (as defined in the November Purchase Agreement), and (f) Magenta employee notes in the amount of approximately $87,000.

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“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

______________________________

¹ A-B/21, where A = the new face amount of this Debenture and B = the initial Subscription Amount

² A-B

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“Quarterly Redemption Notice” shall have the meaning set forth in Section [6(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

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d)   Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

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iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment for liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved _________³ shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

Section 5.Certain Adjustments.

_________________________

³ Original Subscription Amount under March Purchase Agreement divided by $0.50.

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a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

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h)Other Adjustments. On the 210^th calendar day following the Original Issue Date (the “Trigger Date”), the Conversion Price shall be reduced to equal the lesser of (i) the then Conversion Price and (ii) a price equal to 90% of the average of each of the VWAPs for the 5 Trading Days immediately prior to the Trigger Date. For clarity, the Conversion Price can only be adjusted downward pursuant to this Section 5(h).

Section 6.Quarterly Redemption.

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a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the November Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the November Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

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a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; and (iii) redemptions as permitted under the November Debentures or the Debentures;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures or November Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default (or with respect to the November Debentures with respect to any event of default thereunder) exist or occur;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

Section 8.Events of Default.

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a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or

Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:_____________

Account No:___________

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.7 8 v132473_ex10-7.htm

Exhibit 10.7

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: March 11, 2008

$__________________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE AMENDING AND RESTATING THE DEBENTURE ORIGINALLY ISSUED 3/11/08 is one of a series of duly authorized and validly issued Amended and Restated Original Issue Discount Secured Convertible Debentures Amending and Restating Debenture Originally Issued 3/11/08 of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Amended and Restated Original Issue Discount Secured Convertible Debenture Amending And Restating Debenture Originally Issued 3/11/08, due on the day immediately preceding the first anniversary of this Debenture, as that term is defined herein (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will terminate on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture.

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FOR VALUE RECEIVED, the Company promises to pay to _____________, or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $__________,on the later to occur of the Termination Date or the Extended Termination Date, as applicable, (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder and to pay default interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the senior lenders under the Archer Loan Agreement (the “Archer Purchasers”).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

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“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

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“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds 300,000 shares per Trading Day (subject to forward and reverse stock splits, stock dividends, stock combinations, recapitalizations and other similar transactions of the Common Stock that occur after the Original Issue Date).

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“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including without limitation, any accrued and unpaid default interest.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture (as defined in the November Purchase Agreement) issued to the Administrator (as defined in the November Purchase Agreement), and (f) Magenta employee notes in the amount of approximately $87,000.

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“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $____________ plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $_________.

“Quarterly Redemption Date” means January 1, April 1, July 1 and October, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

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“Quarterly Redemption Notice” shall have the meaning set forth in Section [6(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid default interest thereon, if any, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the six month anniversary of the Original Issue Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(d) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment for liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved 3,049,358 shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

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a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock duringsuch 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption, provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date). The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quarterly Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; and (iii) redemptions as permitted under the November Debentures or the Debentures;

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e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures or November Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default (or with respect to the November Debentures with respect to any event of default thereunder) exist or occur;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest payment or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

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iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, provided however that the failure of Vanco Direct USA, LLC (“VDUL”) to obtain consent to either the change in control of VDUL by the Company or of any sublease of any of its space from VDUL’s sublessor, or the sublessor or lessor senior to its sublessor or lessor senior to it sublessor with respect to space in ins lease of 200 West Wacker, Chicago, Illinois, shall not be deeded to constitute a breach of the Purchase Agreement;

vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

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x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4, or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Subject to the Archer Intercreditor Agreement, accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

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b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

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e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

24

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

[SIGNATURE PAGES FOLLOW]

25

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

Facsimile No. for delivery of Notices: _______________

26

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of Shares of Common Stock to be Issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of

Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                       

Account No:                   

27

Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

28

EX-10.8 9 v132473_ex10-8.htm

Exhibit 10.8

TERM LOAN AND SECURITY AGREEMENT

Dated as of November ____, 2008

Among

CAPITAL GROWTH SYSTEMS, INC.,

GLOBAL CAPACITY GROUP, INC.,

CENTREPATH, INC.,

20/20 TECHNOLOGIES, INC.,

20/20 TECHNOLOGIES I, LLC,

NEXVU TECHNOLOGIES, LLC,

FNS 2007, INC.,

MAGENTA NETLOGIC LIMITED,

CAPITAL GROWTH ACQUISITION, INC., and

VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC

(as Borrowers),

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

(as Lenders),

and

ACF CGS, L.L.C.

(as Agent)

TABLE OF CONTENTS

		Page
1.	Definitions	2
2.	Borrowing	14
3.	Interest and Fees	20
4.	Representations and Warranties of Borrowers	21
5.	Collateral	25
6.	Financial Covenants	26
7.	Collateral Covenants	26
8.	Negative Covenants	30
9.	Reporting and Information	32
10.	Inspection Rights; Expenses; Etc.	33
11.	Rights of Setoff, Application of Payments, Etc.	34
12.	Attorney-in-Fact	34
13.	Defaults and Remedies	35
14.	Indemnification	38
14.	Indemnification	43
15.	General Provisions	44

Attachments:

Addendum

Exhibit A - Lender and Lenders’ Commitment

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Term Note

Exhibit D - Employment Agreements

TERM LOAN AND SECURITY AGREEMENT

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the ___ day of September, 2008 among CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a Global Capacity Direct, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein individually as a “Borrower” and collectively as the “Borrowers”), the lenders from time to time party hereto (each a “Lender” and collectively, the “Lenders”) and ACF CGS, L.L.C., a Delaware limited liability company, as agent for the Lenders (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a secured term loan and Lenders are willing to provide a secured term loan to Borrowers on the terms set forth herein, which secured term loan Borrowers will use for the purposes permitted hereunder; and

WHEREAS, Borrowers’ business is a mutual and collective enterprise and Borrowers believe that the consolidation of the secured term loan and other financial accommodations under this Agreement will enhance the aggregate borrowing powers of Borrowers and facilitate the administration of their loan relationship with Agent and each of the Lenders, all to the mutual advantage of Borrowers; and

WHEREAS, each Borrower acknowledges that it will receive substantial direct and indirect benefits by reason of the making of the secured term loan and other financial accommodations to Borrowers as provided in this Agreement, by virtue of Borrowers’ various inter-relationships as joint guarantors or joint obligors and the beneficiaries thereof, as lessors and lessees, as suppliers and customers, and as joint venturers; and

WHEREAS, Lender’s willingness to extend financial accommodations to Borrowers, and to administer Borrowers’ collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers’ request and in furtherance of Borrowers’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions. For purposes of this Agreement:

“20/20 Inc. Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 Inc. in favor of the Agent, on behalf if itself and the Lenders, with respect to its Stock in 20/20 LLC.

“20/20 LLC Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 LLC in favor of the Agent, on behalf of itself and the Lenders, with respect to its Stock in Magenta.

“Accounts” means all presently existing or hereafter arising accounts receivable due each Borrower (including medical and health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to each Borrower, whether or not arising from the sale or lease of goods or the rendition of services by such Borrower (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of each Borrower’s rights in, to and under all purchase orders now or hereafter received by such Borrower for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to each Borrower under all contracts for the sale or lease of goods or the rendition of services by such Borrower (whether or not yet earned) (including the right to receive the proceeds of said purchase orders and contracts), all amounts payable to each Borrower under any insurance policy, all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by each Borrower that correspond to any of the foregoing.

“Account Control Agreements” shall mean collectively, the Private Bank Account Control Agreement and the HSBC Account Control Agreement.

“Acquisition” means the acquisition by CG Acquisition of 100% of the membership interests of Vanco pursuant to the Acquisition Documents.

“Acquisition Documents” means the Interest Purchase Agreement and the Management Services Agreement, together with all other agreements, instruments, opinions of counsel and other documents executed and/or delivered in connection with the Acquisition.

“Addendum” means the Addendum to Term Loan and Security Agreement attached hereto, as the same may be amended and in effect from time to time.

“Adjusted Working Capital” means the remainder of (a) the consolidated current assets of the Borrowers minus the amount of cash and cash equivalents included in such consolidated current assets, minus (b) the consolidated current liabilities of the Borrowers minus the amount of consolidated short-term Indebtedness (including current maturities of long-term Indebtedness) of the Borrowers included in such consolidated current liabilities.

2

“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agent” has the meaning set forth in the preamble hereto.

“Agent Advances” has the meaning specified therefor in Section 14(h).

“Agreement Date” means the date as of which this Agreement is dated.

“Annualized EBITDA” shall mean the trailing period EBITDA annualized to twelve (12) months.

“Applicable Authorization States” means the states of Arizona, Delaware, Georgia, Indiana, Pennsylvania, Tennessee and West Virginia.

“Applicable Margin” means the rate of interest to be paid on the unpaid principal amount of the Term Note from and after the Agreement Date. For the period from and after the Agreement Date, the Applicable Margin shall be 14% per annum payable monthly, of which 9% shall be paid in cash, and 5% shall be capitalized, compounded and added to the unpaid principal amount of the Term Note monthly (whereupon from and after such date such additional amounts shall also accrue interest) (such interest, “PIK Interest”).

“Applicable Rate” means a rate equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in form approved by the Agent.

“Borrowers’ Agent” means Parent, in its capacity as agent for itself and the other Borrowers pursuant to Section 2(j).

“Borrower Asset Sales” has the meaning set forth in Section 2(c)(i).

“BT Receivable” means those certain receivables related to Magenta invoices OPT-20080807-1 and OPT-20080331-2 as defined in the BT Receivables Agreement.

“BT Receivables Agreement” means that certain Second Amendment to British Telecommunications and Magenta netLogic Ltd. Camera Agreement 10693 dated September 30, 2008.

3

“BT Receivable Payment” means any cash received by a Borrower with respect to the BT Receivable.

“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent is otherwise closed for transacting business with the public.

“Capitalized Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligations” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Balance” means, at any time, unrestricted cash and cash equivalents of Borrowers, on deposit with (i) the Depository Bank and subject to the Private Bank Account Control Agreement, and (ii) HSBC USA, National Association and subject to the HSBC Account Control Agreement.

“CG Acquisition Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by CG Acquisition in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Vanco.

“Collateral” has the meaning set forth in Section 5(a).

“Commitment” means with respect to each Lender, the commitment of such Lender to make the Term Loan to the Borrowers in the amount set forth in Exhibit A hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement.

“Credit Party” means each Borrower, any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, or any other Person which has granted a Lien on any assets of such Person as collateral for any of the Obligations, and “Credit Parties” means all of the foregoing Persons collectively.

“Customer” means any customer of any Borrower.

“Debenture Documents” means the Debenture Purchase Agreements and all debentures, security agreements, guarantees and other agreements executed and/or delivered in connection with the Debenture Indebtedness.

“Debenture Indebtedness” means Indebtedness of Parent (which is guaranteed by certain other Borrowers) evidenced by the debentures issued pursuant to the Debenture Purchase Agreements, as described in Item 9 of the Addendum.

“Debenture Intercreditor Agreement” means that certain Debt Subordination and Intercreditor Agreement dated on or about the Agreement Date among Agent, for the benefit of the Agent and the Lenders, and the Debenture Purchasers.

4

“Debenture Purchasers” means the Purchasers under and as defined in the Debenture Purchase Agreements and any successor holders of Debenture Indebtedness permitted under the Debenture Intercreditor Agreement.

“Debenture Purchase Agreements” mean each of: (a) that certain Securities Purchase Agreement dated as of March 11, 2008, among Parent and the Debenture Purchasers party thereto, as modified and amended pursuant to that certain Consent, Waiver, Amendment and Exchange Agreement dated on or about the Agreement Date, pursuant to which Parent agrees to issue debentures to such Debenture Purchasers to cover the outstanding interest payable for the remainder of the terms of their original debentures and to cover the remaining penalties associated with failure to meet the maximum negotiated obligations pursuant to the Registration Rights Agreement between Parent and such Debenture Purchasers; (b) that certain Note Purchase Agreement dated as of September 25, 2008, between Parent and Aequitas Catalyst Fund, LLC –Series B; (c) that certain Securities Purchase Agreement dated on or about the Agreement Date among Parent and the Debenture Purchasers party thereto; and (d) the Interest Purchase Agreement to the extent the same provides, for the issuance of a debenture to the Administrator in the original principal amount of $4,000,000.

“Depository Bank” shall mean The Private Bank and Trust Company, its successors and assigns, in its capacity as the provider of cash management services to the Borrowers.

“Default” has the meaning set forth in Section 13(a).

“EBITDA” means for Borrowers on a consolidated basis, net income (excluding non-recurring gains and extraordinary gains) before provision for interest expense, taxes, depreciation, amortization, and financing and transaction fees relating to the initial closing of this Agreement and the Acquisition ,determined in accordance with GAAP, and excluding, in any event, any non-cash impact on income or loss from application of variable accounting rules or requirements, and any expenses associated with original issue discounts and Stock based compensation.

“Employment Agreements” means, collectively, the Employment Agreements between Parent and each of (i) Patrick C. Shutt, (ii) George A. King, (iii) Robert A. Pollan, (iv) Jim McDevitt, and (v) Chris Conant, each as attached hereto as Exhibit D.

“Equipment” means all of each Borrower’s machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.

“Excess Cash Flow” means, with respect to any fiscal period for the Borrowers on a consolidated basis determined in accordance with GAAP, (a) EBITDA, plus (b) any net decrease (or minus any net increase) in Adjusted Working Capital during such period, minus (c) the sum of (i) the cash portion of interest actually paid during such period, (ii) the cash portion of income taxes paid during such period, (iii) all principal payments made in cash with respect of the Term Loan (if any), and (iv) the cash portion of capital expenditures made during such period and in accordance with Item 21 of the Addendum.

5

“Excluded Equipment” means the Equipment owned by any Borrower or Vanco, as the case may be, and used in connection with the delivery of telecommunications services as part of the respective business operations of any Borrower or Vanco within the Applicable Authorization States.

“Extraordinary Receipts” means any cash received by a Borrower with respect to (a) federal and state tax refunds (but only to the extent such state tax refunds exceed $25,000, in the aggregate in any fiscal year), (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance and, unless Agent provides its prior written consent otherwise, business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, including without limitation, awards or settlements in respect of condemnation and eminent domain proceedings, (e) indemnity payments, (f) any purchase price adjustment received in connection with any purchase agreement (other than relating to ordinary purchases of goods and services in the ordinary course of business), excluding in all events, any future proceeds from the previous asset sale transactions involving Nexvu or FNS, and (g) at any time that a Default shall exist and at the sole discretion of Agent, any other cash received by a Borrower not in the ordinary course of business.

“FCC” means the U.S. Federal Communications Commission.

“Final Closing” means the release from escrow of the Purchased Membership Interests pursuant to the Acquisition Documents.

“Funding Date” means a date (i) no later than one (1) Business Day following the delivery of notification to the Agent, in form and substance satisfactory to Agent in its sole discretion, that the STA Requests (as such term is defined in the Interest Purchase Agreement) have been approved and (ii) on which satisfaction of the applicable conditions set forth in Item 2 of the Addendum have occurred.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination and applied on a consistent basis.

“General Intangibles” means all of each Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of each Borrower (including payment intangibles, all rights under insurance policies and any and all choses or things in action, goodwill, patents and patent applications, trade names, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as each Borrower’s books and records relating to any of the foregoing.

6

“Goods” means all of each Borrower’s present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software to the extent included in “goods” as defined in the UCC, manufactured homes, and standing timber that is to be cut and removed for sale.

“Governing Documents” shall mean, with respect to any Person, its certificate or articles of incorporation, certificate of formation, or, as the case may be, certificate of limited partnership, its by-laws, operating agreement or, as the case may be, partnership agreement or other constitutive documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state, local or foreign national or provincial and all agencies thereof, including, without limitation, any domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions.

“HSBC Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and HSBC USA, National Association.

“Indebtedness” shall mean the aggregate amount of, without duplication, (a) all obligations of each Borrower for borrowed money, (b) all obligations of each Borrower evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of each Borrower to pay the deferred purchase price of property or services (excluding trade payables that are aged less than ninety (90) days), (d) all Capitalized Lease Obligations of each Borrower, (e) all obligations or liabilities of any other Person secured by a Lien on any asset of any Borrower, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by any Borrower; and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of any Borrower.

“Intellectual Property” means any and all licenses, patents, copyrights, trademarks, designs and the goodwill associated with such trademarks.

“Interest Expense” means, for any period, the aggregate of the interest expense of the Borrowers for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Purchase Agreement” means that certain Interest and Loan Purchase Agreement dated as of November 14, 2008 among CG Acquisition, Seller, and the Administrators party thereto.

“Inventory” means all of each Borrower’s inventory as defined in the UCC, together with all of each Borrower’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of each Borrower’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

7

“Investment” shall mean the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, any Person.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments, certificates and other documents executed and/or delivered in connection with this Agreement, including collateral documents, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments, subordination agreements, intercreditor agreements, warrants and registration rights agreements (it being understood, however, that any termination of this Agreement shall not terminate or otherwise limit Agent’s or any Lender’s rights under any such warrant, registration rights agreement or other related document unless Agent expressly so agrees in writing) and all other agreements executed or delivered by any Borrower or any other Credit Party or any Affiliate of any Borrower or any other Credit Party pursuant hereto or in connection herewith.

“Magenta Account” has the meaning set forth in Section 7(k)(ii).

“Magenta Three-Party Account Agreement” shall mean the Three-Party Account Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, Magenta and HSBC Bank, plc.

“Management Services Agreement” means that certain Management Services Agreement dated as of November 14, 2008, among CG Acquisition, Seller, and the Administrators party thereto.

“Material Adverse Effect” shall mean any state of facts, events, changes or effects that is materially adverse to or materially impairs: (a) the business, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Borrowers taken as a whole; (b) the ability of Borrowers to perform the Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or any of the Lenders to enforce any of its rights or remedies with respect to the Obligations or under the Loan Documents; or (c) the Collateral (including the value and condition thereof) or Agent’s or any Lender’s Liens on the Collateral or the priority of such Liens.

“Material Contract” means, with respect to any Person, (i) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person or such Subsidiary of $250,000 or more, (ii) the Acquisition Documents and (iii) all other contracts or agreements material to the business, operations, condition (financial or otherwise), performance, prospects or properties of such Person or such Subsidiary.

8

“Monthly Recurring Circuit Revenue” means the aggregate monthly invoice amount for all monthly billings issued by any of the Borrowers with respect to their circuit business. The monthly recurring circuit revenue will equal the total monthly billing amount determined as of the date the Borrowers issue their monthly invoices (usually the 1^st day of the month).

“Negotiable Collateral” means all of each Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and each Borrower’s books and records relating to any of the foregoing.

“Net Cash Proceeds” means:

(a)with respect to any sale or disposition by a Borrower of property or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under this Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by a Borrower in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction;

(b)with respect to the issuance or incurrence of any Indebtedness by a Borrower, or the issuance by a Borrower of any shares of its Stock (excluding sales of Stock in the Parent pursuant to warrants or options in existence as of the date hereof), the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of a Borrower in connection with such issuance or incurrence, after deducting therefrom only (i) all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such issuance or incurrence, and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction; and

(c)with respect to any Extraordinary Receipts received by a Borrower, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such Extraordinary Receipts, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such Extraordinary Receipts.

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“New Lending Office” has the meaning set forth in Section 2(o).

“Nexvu Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by Nexvu in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Nexvu Manager, Inc. and Nexvu APM, LLC.

“Obligations” means all indebtedness, obligations and liabilities of each Credit Party to Agent, any of the Lenders, and any of their Affiliates, individually or collectively, under the Loan Documents, whether now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise, or whether evidenced by any instrument, agreement or book account, including, but not limited to, the Term Loan (including any modification, renewal or extension), and all interest, taxes, fees, charges, expenses, indemnity obligations and attorney’s fees (whether or not such attorney is a regularly salaried employee of Agent or any of the Lenders or any of their Affiliates) chargeable to any Credit Party or incurred by Agent or any of the Lenders under this Agreement or any other Loan Document.

“Parent Stock Pledge Agreement” means that certain Pledge Agreement of even date herewith granted by Parent in favor of Agent, on behalf if itself and the Lenders, with respect to its Stock in CentrePath, GCG, 20/20 Inc., FNS, Nexvu and CG Acquisition.

“Participant Register” has the meaning specified therefor in Section 16(f)(vii).

“Permitted Dispositions” means (a) sales or other dispositions of Inventory and Equipment that is substantially worn, damaged, or obsolete or no longer used or usable in the business of the Borrowers, in each case, in the ordinary course of business and for fair consideration and on terms no less favorable to the Borrowers than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and (b) sales of Inventory to buyers in the ordinary course of business.

“Permitted Indebtedness” shall mean and include: (a) the Obligations; (b) Indebtedness arising from the endorsement of instruments in the ordinary course of business of a Borrower; (c) Subordinated Debt; (d) Indebtedness existing as of the date hereof to the extent listed on Item 9 of the Addendum; (e) Indebtedness in connection with purchase money security interests constituting Permitted Liens and Capitalized Leases not to exceed, in aggregated principal amount for all Borrowers on a consolidated basis, the amount set forth on Item 20 of the Addendum at any one time outstanding; (f) Indebtedness consisting of reimbursement obligations under surety, indemnity, performance, release and appeal bonds and guarantees thereof and letters of credit issued to landlords in the ordinary course of business of a Borrower; and (g) extensions, refinancings, refundings, renewals, modifications, amendments and restatements of any Permitted Indebtedness that do not increase the principal amount or interest rate per annum thereof, shorten the maturity thereof or accelerate the principal payments thereof.

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“Permitted Investments” shall mean and include: (a) deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent such deposits are fully insured by the Federal Deposit Insurance Corporation in which Agent has a perfected, first-priority security interest, and up £75,000 at any time in the Magenta Account, as disclosed to Agent on Item 14 of the Addendum, in the United Kingdom without such a security interest and provided such account shall be maintained at all times in accordance with the terms of Section 7(k)(ii) of this Agreement; (b) Investments in money market accounts maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (c) Investments in certificates of deposit maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (d) Investments in marketable obligations issued or fully guaranteed by the United States, or any agency thereof, and maturing not more than one (1) year from the date of acquisition; (e) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (f) Investments existing on the date hereof to the extent listed on Item 7 of the Addendum; (g) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business of a Borrower, but only to the extent the same are entered into to hedge risk and not for speculation; (h) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business of the Borrowers; and (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business the Borrowers.

“Permitted Liens” means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment, stay of execution or injunction; (iv) the performance of bids, tenders or contracts (other than for the repayment of borrowed money); (v) indemnity, performance or other bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money); and (vi) obligations to landlords in the ordinary course of business of the Borrowers; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such property or materially detract from the value of such property; (d) Liens existing on the Agreement Date and described on Item 1 of the Addendum; (e) Liens on Equipment securing all or part of the purchase price of such Equipment; provided, however, that (i) such Lien is created contemporaneously with the acquisition of such Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the Indebtedness incurred to acquire such Equipment; (f) so long as the Debenture Intercreditor Agreement is in full force and effect, Liens on all or substantially all assets of Borrowers in favor of the Debenture Purchasers to secure the Debenture Indebtedness, including the indebtedness described in Item 9 of the Addendum; (g) Liens arising from judgments, decrees or attachments that do not constitute a Default under this Agreement; and (h) Liens in favor of Agent or any of the Lenders securing any of the Obligations.

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“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“PIK Interest” has the meaning set forth in the definition of “Applicable Margin”.

“Prime Rate” means, at any time, the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s thirty (30) largest banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three (3) largest U.S. money center commercial banks, as determined by Agent. Notwithstanding the foregoing, for purposes of this Agreement, at no time shall the Prime Rate be less than five percent (5.0%) per annum. The Prime Rate may not be the lowest or best rate at which Agent calculates interest or the Lenders extend credit. Any change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change.

“Private Bank Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and the Depository Bank.

“Pro Rata Share” means the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the Total Commitment.

“Purchased Membership Interests” means the membership interests of Vanco to be purchased by CG Acquisition pursuant to the Acquisition Documents.

“Recurring Circuit Margin” means for a particular measurement period (i) the difference between the Monthly Recurring Circuit Revenue for the months comprising such measurement period and (ii) the direct cost to Borrowers of any circuits included within Monthly Recurring Circuit Revenue for the months included within such measurement period, but excluding any costs which are non-recurring.

“Register” has the meaning set forth in Section 16(f)(iv).

“Registered Loan” has the meaning set forth in Section 16(f)(iv).

“Required Lenders” means Lenders whose Pro Rata Shares aggregate at least 50.1%.

“Related Fund” means, with respect to any Person, an Affiliate of such Person, or a fund or account managed by such Person or an Affiliate of such Person.

“Seller” means Vanco plc (in administration), a United Kingdom corporation.

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“Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act) or equivalent securities issued by Magenta or any other foreign subsidiary.

“Strategic Sourcing Business Unit” means the segment of the Borrowers’ business that provides network services for clients, including design, installation, provisioning, management and monitoring of circuits.

“Subordinated Debt” means (a) so long as the Debenture Intercreditor Agreement remains in full force and effect, the Debenture Indebtedness, and (b) all of the Indebtedness owed by any Borrower to any other Person, the repayment of which is subordinated to the repayment of the Obligations pursuant to the terms of a subordination agreement approved by Agent and the Required Lenders in writing in their sole discretion.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or managing member or may exercise the powers of a general partner whether directly or indirectly, and (c) any other Person (other than a corporation, limited liability company or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Term Loan” has the meaning set forth in Section 2(a).

“Term Note” has the meaning set forth in Section 2(b).

“Total Commitment” means the sum of the amounts of the Lenders' Commitments.

“Transferee” has the meaning set forth in Section 2(o).

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, however, that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

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Other Definitional Provisions. References to the “Addendum” or any “Section” or “Exhibit” refer to the Addendum or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement: words importing any gender include the other genders; the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; all references to time of day shall refer to New York, New York time; and all references to financial calculations or statements on a “consolidated” basis mean calculations or statements that reflect information and results with respect to Borrowers and no other Person. Unless otherwise specifically indicated, all monetary amounts and references herein refer to United States dollars, and all amounts to be loaned and paid hereunder shall be in United States dollars. In the event that Agent receives any payment in any currency other than United States dollars, Agent shall determine the conversion rate with respect to such amount in its reasonable discretion for purposes of determining the amount of the Obligations that have been satisfied.

2.Borrowing and Terms of Payment.

(a)The Term Loan. Subject to the terms and conditions set forth in this Agreement, each Lender, simultaneously and proportionately to their Pro Rata Shares of the Total Commitment, agrees to make a term loan in favor of the Borrowers to be funded on the Funding Date (the “Term Loan”). Any portion of the Total Commitment not funded on the Funding Date, shall not be available to the Borrowers without the Agent’s express written consent. Subject to satisfaction of the applicable conditions set forth in Item 2 of the Addendum,on the Funding Dateeach Lender shall disburse the proceeds of the Term Loan to the Borrowers or as the Borrowers’ Agent shall request in writing. Amounts repaid in respect of the Term Loan may not be reborrowed.

(b)The Term Note. The Term Loan shall be evidenced by separate promissory notes of the Borrowers in the form of Exhibit C attached hereto payable to each Lender (the “Term Note”) in the original principal amount of such Lender’s Commitment, dated as of the Agreement Date (or such other date on which a Lender may become a party hereto in accordance with Section 16(f) hereof)and completed with appropriate insertions.

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(c)Mandatory Prepayments.

(i)Immediately upon the receipt by any Borrower of the proceeds of any voluntary or involuntary sale or disposition by any Credit Party of property or assets (including casualty losses or condemnations but excluding sales or dispositions which qualify as Permitted Dispositions) (“Borrower Asset Sales”), Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such Borrower Asset Sale; provided that, solely in respect of any Borrower Asset Sales, so long as (A) no Default shall have occurred and is continuing, (B) Borrower’s Agent shall have given Agent prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the monies are held in a cash collateral account in which Agent, for the benefit of the Agent and the Lenders has a perfected first priority security interest, and (D) Borrowers complete such replacement, purchase, or construction within 90 days after the initial receipt of such monies, Borrowers shall have the option to apply such monies to the costs of replacement of the property or assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent for application against the Obligations. Nothing contained in this Section 2(c)(i) shall permit any Borrower to sell or otherwise dispose of any property or assets other than in accordance with the terms and conditions of this Agreement.

(ii)Immediately upon the receipt by any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Extraordinary Receipts.

(iii)Immediately upon the issuance or incurrence by any Borrower of any Indebtedness (other than Indebtedness permitted hereunder) or the issuance by any Borrower of any shares of such Borrower’s Stock (excluding sales of Stock of the Parent pursuant to warrants or options in existence as of the date hereof) Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such issuance or incurrence. The provisions of this Section 2(c)(iii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(iv)No later than two (2) Business Days following the receipt by any Borrower of any BT Receivable Payment, Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to sixty-six percent (66%) of the BT Receivable Payment received by such Person. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

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(v)Within ten (10) days following delivery to Agent and the Lenders of Borrowers’ monthly financial statements pursuant to Section 9(a) for the month ended December 31, 2009 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 9(a), ten (10) days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 9(a), Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to 50% of the Excess Cash Flow of the Borrowers for fiscal year 2009. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have overpaid the Excess Cash Flow payment referred to herein, then the Agent shall credit such overpayment to any interest then due and payable, if any, or the Borrowers’ next scheduled payment of interest if no interest is then due and payable. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have underpaid the Excess Cash Flow payment referred to herein, then the amount of such underpayment shall be immediately due and payable in cash to the Agent for application to any outstanding Obligations. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

(d)Voluntary Prepayments. Borrowers may prepay the principal balance of the Term Loan in whole or in part at any time upon at least 30 days’ prior written notice from Borrowers’ Agent to Agent (which notice, once given shall be irrevocable). Any such prepayment of principal shall be accompanied by accrued interest on the amount so prepaid and any fees pursuant to Section 3(c) due and payable on the amount so prepaid. Any portion of the Term Loan prepaid hereunder may not be reborrowed.

(e)Conditions to Obligation to Making of the Term Loan. Borrowers acknowledge that Lenders’ obligation to make the Term Loan to Borrowers is subject to the following terms and conditions:

(i)Agent has no obligation to make the Term Loan to Borrowers or to extend any other financial accommodation to any Borrower unless and until (A) Borrowers deliver to Agent, in form and substance satisfactory to Agent in its discretion, each agreement, instrument, legal opinion and other document specified on Item 2 of the Addendum,and (B) each other condition precedent specified on Item 2 of the Addendumhas been satisfied in a manner satisfactory to Agent in Agent’s sole discretion. Once the conditions described in this Section 2(e) have been satisfied in Agent’s sole and absolute discretion, Agent shall provide Lender with a letter confirming same.

(ii)Lenders’ obligation to make the Term Loan to Borrowers and extend other financial accommodations to Borrowers is subject to the conditions that, as of the Agreement Date, (A) no Default will have occurred and be continuing hereunder, (B) there will have occurred no event or circumstance which has had or which could reasonably be expected to have a Material Adverse Effect, (C) Borrowers’ representations and warranties set forth in this Agreement and the other Loan Documents will be true and correct and (D) the Borrowers’ application for Special Temporary Authority has been approved by the applicable governmental authorities, as defined and described in the Interest Purchase Agreement.

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(f)Repayment of Term Loan. The entire outstanding principal balance of the Term Loan, together with all accrued and unpaid interest and all other outstanding Obligations, shall be due and payable on the Termination Date as provided for in Item 3 of the Addendum, unless sooner due as a result of acceleration or demand hereunder. Borrowers shall make each payment required hereunder or under any other Loan Document without setoff, deduction or counterclaim. All payments by Borrowers shall be made to Agent’s for the account of the Lenders or as otherwise directed by the Agent in writing from time to time and shall be made in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. Any payment received by Agent (or such Person to whom the Agent has directed payment) later than 2:00 p.m. (New York City time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(g)Maturity. This Agreement will continue in full force and effect from the Agreement Date until the Termination Date provided for in Item 3 of the Addendum.

(h)Termination on Default. Notwithstanding the foregoing, should a Default occur and be continuing, Agent will have the right to terminate this Agreement at any time without notice.

(i)Survival. Notwithstanding termination, all the terms, conditions, and provisions hereof (including Agent’s security interest in the Collateral, but excluding any obligations of Agent hereunder) will continue to be fully operative until all Obligations have been fully disposed of, concluded, paid, satisfied, and liquidated (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and obligations under the warrant and registration rights agreement issued or executed in connection herewith). All indemnification obligations of Borrowers hereunder and under the other Loan Documents shall survive termination of this Agreement and the other Loan Documents.

(j)Borrowers’ Agent. Each Borrower other than Parent hereby appoints Parent, and Parent shall act under this Agreement and the other Loan Documents, as, the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent, and each of the Lenders, may rely, and shall be fully protected in relying, on any disbursement instruction, report, information or any other notice or communication made or given by Parent, whether in its own name, as Borrowers’ Agent, or on behalf of one or more Borrowers, and Agent and each of the Lenders, shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers’ obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Borrower from taking actions permitted to be taken by a “Borrower” hereunder.

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(k)Joint and Several Liability.

(i)The Term Loan made to Borrowers and all of the other Obligations of Borrowers, including all interest, fees and expenses with respect thereto, shall constitute one joint and several direct and general obligation of all Borrowers. Notwithstanding anything to the contrary contained herein, each Borrower shall be jointly and severally, with each other Borrower, directly and unconditionally liable to Agent and each of the Lenders for all Obligations, it being understood that the Term Loan to each Borrower inures to the benefit of all Borrowers, and that Agent and each of the Lenders are relying on the joint and several liability of Borrowers as co-makers in extending the Term Loan hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any Obligation payable to Agent or any of the Lenders, it will forthwith pay the same, without notice or demand, unless such payment is then prohibited by application of law (provided such Obligation shall not be extinguished by any such prohibition).

(ii)No payment or payments made by any Borrower or any other Person or received or collected by Agent from any Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of each Borrower under this Agreement, and each Borrower shall remain liable for all of the remaining Obligations until the Obligations are paid in full.

(l)Obligations Absolute. Each Borrower agrees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any of the Lenders with respect thereto, unless such payment is then prohibited by applicable law (provided such Obligation shall not be extinguished by any such prohibition.) All Obligations shall be conclusively presumed to have been created in reliance hereon. The Obligations and other liabilities under this Agreement and the other Loan Documents shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the extension of additional credit to any Borrower or otherwise; (iii) any taking, exchange, release of or non-perfection in any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate or limited liability structure or existence of any Borrower; or (v) any other circumstance which may otherwise constitute a defense available to, or a discharge of, any Borrower. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Agent or any of the Lenders upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.

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(m)Waiver of Suretyship Defenses. Each Borrower agrees that the joint and several liability of Borrowers provided for in this Agreement shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which one or more other Borrowers may hereafter agree (other than an agreement signed by Agent specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Agent with respect to any of the Obligations, nor by any other agreements or arrangements whatever with one or more other Borrowers or with any other Person, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the Obligations and may be enforced without requiring Agent first to resort to any other right, remedy or security. Each Borrower hereby expressly waives promptness, diligence, notice of acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and any requirement that Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other Person or any Collateral.

(n)Contribution and Indemnification among Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting any of the Term Loan made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then, to the extent that such Borrower has not received the benefit of such repaid Obligations (whether through an inter-company loan or otherwise), the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount (as defined below) and the denominator of which fraction is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the greater of (i) the amount of such repaid Obligations actually received by such Borrower (whether through an inter-company loan or otherwise), and (ii) the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (x) rendering such Borrower “insolvent” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”), Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (y) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (z) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification and reimbursement under this paragraph shall be subordinate in right of payment to the prior payment in full of the Obligations.

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(o)Non-U.S. Lender. Each Lender (or any transferee or assignee thereof, including a participation holder (any such entity, a “Transferee”), that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “NonU.S. Lender”) shall deliver to the Agent and the Borrowers two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881 (c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), in each case claiming complete exemption from U.S. Federal withholding tax on payments by the Credit Parties under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms or any other forms required under applicable law within 20 days after receipt of a written request therefor from the Borrowers or the Agent. Notwithstanding any other provision of this Section 2(o), a Non-U.S. Lender shall not be required to deliver after the date hereof any form pursuant to this Section 2(o) that such Non-U.S. Lender is not legally able to deliver.

3. Interest and Fees.

(a)Interest on the Term Loan. The Term Note shall bear interest at the Applicable Rate. Interest on the Term Note shall be computed on the basis of the actual number of days elapsed over a year of 360 days. All accrued interest on the Term Note shall be payable monthly in arrears, in cash or in PIK Interest, as specified in the definition of Applicable Margin.

(b)Default Interest. To the extent permitted by law and without limiting any other right or remedy of Agent or any of the Lenders hereunder, whenever there is a Default under this Agreement, the rate of interest on the unpaid principal balance of the Obligations shall, at the option of Agent or the Required Lenders, be increased by adding the default margin identified on Item 4 of the Addendum to the interest rate otherwise in effect hereunder. In addition, upon the occurrence and during the continuation of a Default under this Agreement, all accrued PIK Interest shall immediately become due and payable in full and without any notice, demand or presentment of any kind notwithstanding any acceleration by the Required Lenders hereunder. Agent may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Borrowers acknowledge that: (i) such additional rate is a material inducement to Lenders to make the Term Loan described herein; (ii) Lenders would not have made the Term Loan in the absence of the agreement of Borrowers to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lenders that the Term Loan will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Agent and each of the Lenders in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Term Loan, and (B) compensation to Agent and each of the Lenders for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Agent’s and each of the Lenders’ entitlement to this charge will continue until all Obligations are paid in full.

(c)Fees. Borrowers will pay to Agent (to be allocated among the Lenders in accordance with their Pro Rata Shares) the fees set forth in Item 5 of the Addendum.

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(d)No Usury. Borrowers acknowledge that Agent does not intend to reserve, charge or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Agent should collect any amount from Borrowers which, if it were interest, would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations remain outstanding, will be refunded to Borrowers.

4. Representations and Warranties of Borrowers.

(a)Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc. Borrowers represent and warrant to Agent and the Lenders that: (i) the exact legal name, type of organization, jurisdiction of organization and organizational identification number of each Borrower are fully and accurately set forth on Item 6 of the Addendum, and each Borrower is duly organized and validly existing under the laws of its jurisdiction of organization; (ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Borrower’s corporate or limited liability company powers, have been duly authorized by all necessary corporate or limited liability company action, do not violate (A) any Borrower’s constituent documents, any law or regulation, including without limitation, (B) any law or regulation relating to occupational health and safety or protection of the environment, applicable to any Borrower, or any indenture, agreement, or undertaking to which any Borrower is a party or by which any Borrower or any Borrower’s property is bound, except where such violation could not reasonably be expected to have a Material Adverse Effect; (iii) this Agreement and the other Loan Documents to which any Borrower is a party constitute valid, binding and enforceable obligations of each Borrower party thereto in accordance with the terms hereof and thereof, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors’ rights generally or by generally applicable equitable principles affecting the enforcement of creditors’ rights; (iv) no Borrower has any subsidiaries or other investments in other Persons, except as set forth on Item 7 of the Addendum and except for other Permitted Investments; (v) except as set forth on Item 29 of the Addendum, each Borrower is in compliance in all material respects with all laws, rules and regulations applicable to such Borrower, including laws, rules or regulations concerning the environment, occupational health and safety and pensions or other employee benefits; (vi) except as set forth on Item

8 of the Addendum, there is no litigation or investigation pending against any Borrower (or, so far as any Borrower is aware, threatened) which, if it were decided adversely to such Borrower, could reasonably be expected to have a Material Adverse Effect (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the Term Loan hereunder, no Borrower is indebted to any other Person for money borrowed nor has any Borrower issued any guaranty of payment or performance by any other Person, except for Permitted Indebtedness; (viii) since the date of the financial statements of Borrowers most recently delivered to Agent, there has been no material adverse change in any Borrower’s business, any Borrower’s financial or operational condition or any Borrower’s business prospects; and (ix) each Borrower is, and after giving effect to the consummation of the Acquisition, the incurrence of the Term Loan under this Agreement and the application of the proceeds of such Term Loan, the Borrowers, on a consolidated basis, will be, solvent and will have sufficient revenues to pay the Borrowers’ obligations as they come due and adequate capital with which to conduct the Borrowers’ business, all determined on a consolidated basis.

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(b)Title to Assets, Other Collateral Matters. Borrowers represent and warrant to Agent and the Lenders that: (i) subject to the escrow established for the Purchased Membership Interests pursuant to the Acquisition Documents, Borrowers have good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust, security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by any Borrower, except in Agent’s favor for the benefit of the Agent and the Lenders, and except with respect to Permitted Liens; (ii) the Accounts are not subject to any material dispute, claim or right of offset and are validly owing by the applicable Customers and, subject to immaterial exceptions, are collectible by Borrowers in the ordinary course of business; (iii) all Inventory is in good condition, meets all applicable governmental standards and is currently usable or saleable in the ordinary course of the applicable Borrower’s business for a price approximating at least such Borrower’s cost thereof; (iv) all Equipment is in good condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards in all material respects; (vi) in the past five years, except as set forth on Item 9 of the Addendum (A) no Borrower has used any other legal, trade or fictitious names, and (B) other than the Acquisition, no Borrower has been a party to any merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) the chief executive office and principal place of business of each Borrower, all Inventory, all Equipment and all other Collateral is located at the addresses (including the county) set forth on Item 11 of the Addendumand has not been located at any other location during the five year period prior to the Agreement Date.

(c)Ownership Structure.Borrowers represent and warrant that Item 12 of the Addendum accurately describes the ownership of each Borrower’s capital stock, membership interests or other equity interests.

(d)Acquisition. Borrowers represent and warrant to Agent and the Lenders that (i) Borrowers have furnished to Agent true, complete and correct copies of all of the Acquisition Documents (including any schedules, exhibits and annexes thereto) as in effect on the date hereof; (ii) none of the Acquisition Documents has been amended, supplemented or modified; (iii) the Acquisition Documents constitute the complete understanding among the parties thereto in respect of the Acquisition and the other matters and transactions covered thereby; (iv) each Acquisition Document has been duly executed and delivered by the parties thereto and is a legal, valid and binding obligation of each such party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles; and (v) the Borrowers are not aware of any fact or circumstance that would prohibit the Acquisition from occurring including, without limitation, the Final Closing.

(e)Consummation of Transactions. Subject to the occurrence of the Final Closing upon satisfaction of the conditions precedent set forth in Section 1.5 of the Interest Purchase Agreement, Borrowers represent and warrant to Agent and the Lenders that, on the Agreement Date, the transactions contemplated by the Acquisition Documents will have been consummated in accordance with all applicable laws (except where such non-compliance could not reasonably be expected to have a Material Adverse Effect) and, except as consented to in writing by Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the material conditions to such consummation set forth in the Acquisition Documents shall have been fulfilled without any waiver of any such material conditions. Agent acknowledges that the Purchased Membership Interests shall be held in escrow pursuant to the satisfaction of certain conditions specified in the Interest Purchase Agreement, and Borrowers represent and warrant to Agent and Lenders that (i) the Purchased Membership Interests will be owned by CG Acquisition free of such escrow arrangement or any claim by Seller no later than 90 days after the Agreement Date, and (ii) the Seller has no right to remove the Purchased Membership Interests from such escrow arrangement or otherwise reclaim the Purchased Membership Interests or prevent CG Acquisition from becoming the absolute owner thereof no later than 90 days following the Agreement Date.

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(f)Licenses and Governmental Approvals. Borrowers represent and warrant to Agent and Lenders that, except for those Governmental Approvals the absence of which could not reasonably be expected to have a Material Adverse Effect, (i) each Borrower has all Governmental Approvals required by applicable law in order to operate its business; (ii) all such Governmental Approvals are in full force and effect; and (iii) Agent and each of the Lenders are not required to obtain any such Governmental Approval in order to enter into the transactions contemplated by this Agreement or to exercise their rights and remedies hereunder (including the liquidation of the Collateral and collecting the Accounts), except for such consents and approvals as may be required by the FCC or any state public service commission in connection with the transfer of control or assignment of a licensee of, or an authorization or license issued by such governmental entity to Vanco and as set forth on Item 29 of the Addendum and except for such consents and approvals that that would be required under federal law for Agent and each of the Lenders to exercise their rights and remedies hereunder.

(g)Additional Representations. Borrowers represent and warrant to Agent and the Lenders that: (i) no Borrower is engaged as one of such Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) no Borrower owns any real property or leases any real property other than as listed on Item 13 of the Addendum; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Item 13 of the Addendum; and (iv) a true, correct and complete list and brief description of all bank accounts maintained by each Borrower with any bank or financial institution is set forth on Item 14 of the Addendum.

(h)Intellectual Property. Borrowers represent and warrant to Agent and the Lenders that, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Item 15 of the Addendum is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Borrower is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, to the best knowledge of Borrowers, after reasonable inquiry, threatened in writing to be brought against any Borrower which would be reasonably likely to jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications.

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(i)Leases. Borrowers represent and warrant that, each Borrower enjoys peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by a Borrower exists under any of them.

(j)Material Contracts. Borrowers represent and warrant that, set forth on Item 16 of the Addendumis a description of all Material Contracts of the Borrowers, showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the applicable Borrower and, to the best of Borrowers’ knowledge, each other Person that is a party thereto in accordance with its terms, (b) is not in default due to the action or inaction of any Borrower and (c) neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under any Material Contract.

(k)Customers and Suppliers. Borrowers represent and warrant that, set forth on Item 17 of the Addendum is a list of the top 20 largest customers of the Credit Parties and the top 20 largest suppliers of Credit Parties, in each case for the year ended December 31, 2007 and the six-month period ended June 30, 2008. Except as contemplated by the BT Receivables Agreement, there has not been, and none of Credit Parties have received notice of, any termination or cancellation of, or a materially adverse modification or change in, the business relationship with any of the 10 largest customers and suppliers, and, to the knowledge of Credit Parties, such customers and suppliers intend to renew their customer or supplier contracts, as applicable, in the ordinary course and on terms as favorable as those currently in place.

(l)Taxes. Borrowers represent and warrant that, each of the Credit Parties has filed all federal, state, and other tax returns and reports required to be filed, and have paid all federal, state, and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable.

(m)FCC Licenses, Etc. Except for any change of control or similar applications to be filed with respect to Vanco as described in Item 29 of the Addendum, Borrowers represent and warrant that, all FCC, state public utility commission and other required permissions and licenses are in good standing, and that Borrowers are not aware of any claim, purported claim or unrealized claim against the validity of the Borrowers’ ability to operate now and into the future under such existing licenses.

(n)Working Capital. Borrowers represent and warrant that after giving effect to the transactions contemplated in the Debenture Documents and this Agreement (i) the Borrowers, on a consolidated basis, have not less than (a) ($8,453,687) in Adjusted Working Capital and (b) not less than $6,000,000 in cash;  and (ii) the aging and collectability of the Borrowers' accounts receivable is in all material respects similar to the aging and collectability of the accounts receivable reflected by the financial statements delivered to Agent pursuant to Item 2(p) of the Addendum. 

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5. Collateral.

(a)Grant of Security Interest. To induce the Lenders to accept this Agreement and to make the Term Loan to Borrowers, each Borrower hereby grants to Agent, for itself and as agent for each Lender, a security interest in, and assigns, mortgages and pledges to Agent, for itself and as agent for any each Lender, all of such Borrower’s right, title and interest in and to all of such Borrower’s property (other than Excluded Equipment), whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising, including all of the following (collectively, the “Collateral”):

(i)all Accounts,Inventory, Equipment (other than Excluded Equipment), Goods, General Intangibles, Intellectual Property and Negotiable Collateral;

(ii)all investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts and all funds on deposit therein;

(iii)all chattel paper (whether tangible or electronic) and contract rights;

(iv)all guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

(v)all documents, books and records relating to any Collateral or to any Borrower’s business;

(vi)all Governmental Approvals and all proceeds from Governmental Approvals, but in each case only to the extent permitted under applicable law (including, without limitation, the Communications Act of 1934);

(vii)all other property of any Borrower now or hereafter in the possession or control of Agent or any of Agent’s Affiliates (including cash, money, credits and balances of any Borrower held by or on deposit with Agent or any Affiliate of Agent);

(viii)all other assets of any Borrower in which Agent receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody or control of Agent or any Affiliate of Agent;

(ix)all of each Borrower’s commercial tort claims listed on (A) Item 18 of the Addendum(which Borrowers represent and warrant is a true, accurate and complete list of all of each Borrower’s commercial tort claims as of the Agreement Date) or (B) any other writing provided to Agent pursuant to Section 7(g); and

(x)all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

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(b)Obligations. Such grant, assignment, mortgage and transfer is made for the purpose of securing, and the Collateral secures and will continue to secure, all of the Obligations; provided that upon satisfaction of all Obligations other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement, the Lenders shall release any Liens in the Collateral.

(c)Excluded Equipment. Borrowers agree that Agent shall automatically have a security interest in the Excluded Equipment promptly after receiving any Governmental Approvals required for the lawful grant of such security interest. Borrowers agree to execute and deliver to Agent such security agreements and other documents confirming such grant as Agent may reasonably request, but any failure to do so shall not limit Agent’s security interest therein pursuant to the first sentence of this paragraph. Each Borrower represents and warrants to Agent that it does not own any Excluded Equipment.

6.Financial Covenants. Unless the Required Lenders shall otherwise consent in writing, the Borrowers, on a consolidated basis, shall comply with each of the financial covenants set forth on Item 19 of the Addendum.

7.Collateral Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 7, unless the Required Lenders shall otherwise consent in writing.

(a)Accounts. Borrowers will notify Agent promptly of and settle all Customer disputes, but, if Agent so elects while a Default exists, Agent will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and conditions as Agent deems advisable without incurring liability to any Borrower for Agent’s performance of such acts. Agent may, at any time and from time to time, contact Customers to verify Accounts and, while a Default exists, Agent may notify Customers of Agent’s security interest in the Accounts and instruct such Customers to pay such Accounts to one of the bank accounts listed on Item 14 of the Addendum. All of each Borrower’s books and records concerning Accounts and a copy of each Borrower’s general ledger will be maintained at the address of Borrowers’ chief executive office set forth on Item 11 of the Addendum. All Accounts will be, in all material respects and except as otherwise indicated in writing to Agent, bona fideand existing obligations of Customers arising out of the sale of goods and/or the rendering of services by Borrowers in the ordinary course of Borrowers’ business, owned by and owing to the applicable Borrower without defense, setoff or counterclaim, and will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens.

(b)Inventory. All Inventory will at all times be located at one of the Inventory locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum, will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens. Sales of Inventory will be made in compliance with all material requirements of applicable law.

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(c)Equipment. Borrowers will maintain all Equipment used or useful in Borrowers’ business in good and workable condition, ordinary wear and tear excepted, and, except for Excluded Equipment only for the first 90 days after the Agreement Date, subject to a perfected, first-priority security interest in Agent’s favor and free and clear of all other Liens (other than Permitted Liens), at one of the locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum.

(d)Defense of Title. All Collateral will at all times be owned by Borrowers, and Borrowers will defend Borrowers’ title to the Collateral against the claims of third parties. Borrowers will at all times keep accurate and complete records of the Collateral.

(e)Perfection; Further Assurances. No Borrower shall change its name, jurisdiction of organization, type of organization or organizational identification number; provided, however, that Vanco may change its name to “Global Capacity Direct, LLC” so long as Borrowers provide Agent with at least 5 Business Days’ notice of such name change. Borrowers will give Agent at least 30 days’ prior written notice of any change in the location of any Borrower’s principal place of business or chief executive office, any change in the locations of any Borrower’s Inventory or Equipment and any acquisition by any Borrower of any interest in real property. Each Borrower will, at Borrowers’ expense, promptly execute and deliver from time to time at Agent’s request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary or desirable to perfect or continue perfection of Agent’s security interest in Borrowers’ property or, at Agent’s request, to create and perfect a Lien on newly acquired real property. Borrowers will use all reasonable efforts to obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Agent’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers shall, immediately upon written request therefor from Agent, endorse and assign such Negotiable Collateral over to Agent and deliver actual physical possession of the Negotiable Collateral to Agent. Borrowers shall at any time and from time to time take such steps as Agent may request for Agent (i) to obtain an acknowledgment, in form and substance satisfactory to Agent, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Agent, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or chattel paper (including electronic chattel paper) in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Agent, (iii) to have Agent’s Lien noted on each certificate of title evidencing any Collateral, and (iv) otherwise to insure the continued perfection and priority of Agent’s security interest in any of the Collateral and of the preservation of its rights therein. Agent may, from time to time at Borrowers’ expense, obtain an appraisal on some or all of the Collateral; provided, however, that Borrowers shall not be required to reimburse Agent for more than one such appraisal per calendar year (it being understood that any such appraisal conducted while a Default exists shall not count against such one-per-year limitation).

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(f)Insurance. Borrowers will obtain and maintain in full force and effect insurance covering the Collateral against all customary risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such customary risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent, which policies will name Agent, for itself and each of the Lenders, as an additional insured and provide that loss thereunder will be payable to Agent as Agent’s interests may appear upon a loss payee endorsement reasonably acceptable to Agent. Borrowers will also obtain and maintain in full force and effect liability insurance and such other types of insurance as Agent may reasonably require (including business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent. All proceeds of any such insurance will be paid over to Agent directly, and Agent may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Agent determines or, in Agent’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Borrowers will provide to Agent on or prior to the Agreement Date and from time to time thereafter, certificates showing such coverage in effect and, at Agent’s request, the underlying policies.

(g)Commercial Tort Claims. If any Borrower shall at any time acquire a commercial tort claim, Borrowers shall immediately notify Agent in a writing signed by the applicable Borrower of the details thereof and grant to Agent, for itself and each of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

(h)Financing Statements. Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrowers or words of similar effect and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the applicable Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and each Borrower hereby ratifies and re-authorizes any such financing statement filed by Agent on or prior to the Agreement Date. Each Borrower agrees to furnish any such information to Agent promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Agent on behalf of any Borrower or filed by Agent without the signature of any Borrower and may be filed at any time in any jurisdiction. Each Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any Borrower as the debtor and Agent as the secured party without the prior written consent of Agent, and each Borrower agrees that it shall not do so without the prior written consent of Agent.

(i) Governmental Approvals.

(i)Each Borrower shall maintain in full force and effect all Governmental Approvals required by applicable law in order to operate such Borrower’s business, except for those Governmental Approvals, the absence of which could not reasonably be expected to result in a Material Adverse Effect. Borrowers shall promptly notify Agent in the event that any such license or approval is revoked or if any Borrower receives any notice from any licensing authority or other governmental authority which alleges that any Borrower is or may be in violation of any applicable law, rule, regulation or licensing requirement.

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(ii)Borrowers shall, as described below, act immediately, upon notice of a Default, to permit Lender to realize the full value of foreclosure on the Collateral, including, without limitation, by obtaining any and all regulatory approvals required to do so. For example, and without limitation of the foregoing, if the approval of the FCC or any state public service commission is required in connection with any action taken by the Agent or any Lender (including any of their respective agents, officers, and attorneys) in the exercise of their rights and remedies hereunder with respect to the Collateral, in order to facilitate the intended realization of the value of the Collateral the Borrowers shall immediately and in no event later than three (3) Business Days following notice thereof take such action as is requested by Lender or Agent to obtain each and any approval required to allow a Lender the full benefit of the Collateral and Borrowers shall diligently pursue the obtaining of such approvals until obtained in accordance with the instructions of Agent or a Lender and applicable law. For avoidance of doubt, and by way of example, immediately upon notice thereof, Borrowers shall or shall cause their counsel to prepare, or at the option of Agent or a Lender to cooperate with counsel of Agent or a Lender in preparing, relevant applications to the FCC and each applicable state public service commission to seek approval of a substantial transfer of control of the applicable Borrower or its licenses and authorizations as instructed by Agent or a Lender, or to do any other action to protect for a Lender the value of the applicable Borrower’s licenses and authorizations. Without diminution of the foregoing, the Borrowers shall, immediately following the occurrence of a Default which is continuing, upon the written request and instructions of the Agent, execute and deliver (or cause the execution and delivery of) all relevant applications, certificates, instruments, agreements and other documents to the FCC or the applicable state public service commission, or at the option of Agent or a Lender, to Agent or a Lender for filing with Borrowers’ cooperation, which are required to be filed in connection with obtaining any required approval of the FCC or any state public service commission and take such other action as the Agent may request in connection therewith.

(j) Conduct of Business. The Borrowers shall conduct their business in substantially the same manner as currently conducted.

(k) Bank Accounts.

(i)The Borrowers (other than Magenta) will maintain their principal accounts for operation, administration, cash management and other deposit accounts for the conduct of the Borrowers’ business with the Depository Bank. On or prior to the Agreement Date, the Borrowers will establish and maintain (so long as the Obligations are outstanding), the Private Bank Account Control Agreement, which shall be applicable to all bank accounts of the Borrowers, other than the bank account maintained by Magenta in the United Kingdom and the account subject to the HSBC Account Control Agreement.

(ii) Magenta will maintain a single bank account (as disclosed to Agent on Item 14 of the Addendum) with HSBC Bank plc (the “Magenta Account”). On or prior to the Agreement Date, Magenta will establish and maintain (so long as the Obligations are outstanding), the Magenta Three-Party Account Agreement, pursuant to which all amounts deposited in the Magenta Account in excess of £75,000 shall automatically be transferred (on a daily basis if applicable) to the account of Borrowers identified in the Magenta Three-Party Account Agreement which is subject to the HSBC Account Control Agreement.

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(l)Employment Agreements. The non-compete provisions contained in the Employment Agreements shall remain in full force and effect and shall not be amended, modified or waived without the Agent’s written consent.

8.Negative Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 8, unless the Required Lenders shall otherwise consent in writing.

(a)No Merger or Disposition of Assets. No Borrower will merge or consolidate with any other Person, or purchase all or substantially all of the assets of any other Person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of such Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, each Borrower may make Permitted Dispositions.

(b)No Debt or Liens; Taxes. No Borrower will obtain or attempt to obtain from any Person other than Agent any loans, advances, or other financial accommodations or other Indebtedness of any kind, nor will any Borrower enter into any direct or indirect guaranty of any obligation of another Person, other than Permitted Indebtedness. No Borrower will permit any of its assets to be subject to any Lien other than Permitted Liens. Each Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrowers will, upon request by Agent, promptly furnish Agent with proof satisfactory to Agent that Borrowers have made such payments and deposits.

(c)No Distributions; Payments on Subordinated Debt. No Borrower will retire, repurchase or redeem any of such Borrower’s Stock in such Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of Stock) to any owner or holder of such Borrower’s Stock; provided, however, that any Borrower may pay cash dividends or distributions to any other Borrower which owns such Borrower’s Stock. No Borrower will refinance, repurchase, defease or make any payment on any Subordinated Debt, other than payments expressly permitted by the Debenture Intercreditor Agreement or subordination provisions applicable to such Subordinated Debt.

(d)No ERISA Liabilities. Borrowers will make timely payments of all contributions required to meet the minimum funding standards for Borrowers’ employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Agent the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by any Borrower of any governmental notice (other than routine requests for information) in respect of any such plan.

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(e)Transactions with Affiliates. No Borrower will engage in any transaction with any of such Borrower’s or any other Borrower’s officers, directors, employees or other Affiliates, except for an “arms-length” transaction on terms no less favorable to such Borrower than would be granted to such Borrower in a transaction with a Person who is not an Affiliate of any Borrower, which transaction shall be approved by such Borrower’s disinterested directors or managers and shall be disclosed in a timely manner to Agent prior to the consummation of the transaction.

(f)Loans/Investments. No Borrower will make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit to customers in the ordinary course of business; and (ii) Permitted Investments. No Borrower shall purchase, acquire or otherwise invest in any Person except Permitted Investments and investments in other Borrowers; provided, however, that the aggregate amount of intercompany advances and other transfers to Magenta by the other Borrowers shall not exceed the actual cash expenses of Magenta, which such actual cash expenses shall be in the ordinary course and consistent with past practices of Magenta. Without limiting the generality of the foregoing, no Borrower shall create any new subsidiary or make loans to, transfer any money or other assets to or otherwise invest in any subsidiary unless such subsidiary is or becomes a Borrower hereunder pursuant to documentation acceptable to Agent in its reasonable discretion.

(g)Capital Expenditures. Borrowers shall not make or incur capital expenditures in excess of the amount set forth on Item 21 of the Addendum during any fiscal year, determined for all Borrowers on a consolidated basis.

(h)Compensation. Borrowers shall not increase the total compensation paid to their officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year of Borrowers in an aggregate amount for all such officers and directors in excess of the limit specified in Item 22 of the Addendum.

(i)Amendments of Documents. No Borrower shall amend or modify (i) any Acquisition Document or any other note, instrument or agreement in connection with the Acquisition without the prior written consent of Agent, (ii) its articles or certificate of incorporation, articles or certificate of organization, by-laws, limited liability company agreement or other constituent documents, or (iii) any Debenture Document or any other note, instrument or agreement in connection with any other Subordinated Debt without the prior written consent of Agent; provided, however, that Borrowers may amend the Debenture Documents without the consent of the Agent to the extent expressly permitted by the Debenture Intercreditor Agreement.

(j)Capitalized Leases. The Borrowers, taken as a whole, shall not incur greater than $500,000 in additional Capitalized Lease Obligations after the date hereof; providedfurther, that such Capitalized Lease Obligations shall be (i) on terms and conditions consistent with current market conditions for equipment of that kind, and (ii) solely for the purchase and/or lease of new pieces of or as a replacement of existing equipment.

(k)Use of Proceeds. Borrowers shall not use the proceeds of the Term Loan for any purpose other than (i) consummating the Acquisition, and (ii) general working capital purposes.

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(l)BT Receivable. Borrowers shall not compromise or settle any dispute, provide a discount, write-off, or waive collection of any part of the BT Receivable without the prior written consent of the Agent.

9. Reporting and Information.

(a)Financial StatementsBorrowers will submit to Agent as soon as available, and in any case not later than thirty (30) days after the end of each month, a balance sheet and a detailed statement of profit and loss by business unit and a statement of cash flows, in each case prepared in accordance with GAAP on a consolidated (and, if requested by Agent, consolidating) basis, certified by the chief financial or accounting officer of Parent as presenting fairly, in accordance with GAAP, Borrowers’ financial condition as of the last day of such month and Borrowers’ results of operations for such month and for the portion of Borrowers’ fiscal year ending with such month. Borrowers will also submit to Agent annual financial statements within 120 days after the end of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders’ equity, and a statement of cash flows, in each case prepared in accordance with the requirements set forth on Item 23 of the Addendum on a consolidated (and, if requested by Agent, consolidating) basis. Borrowers will also submit to Agent annually at least 60 days prior to Borrowers’ fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement on a consolidated (and, if requested by Agent, consolidating) basis. Together with each monthly and annual financial statement, Borrowers will deliver to Agent the certification of the chief financial or accounting officer of Parent in the form of Exhibit B attached hereto to the effect that Borrowers are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if Borrowers are not in compliance, describing the nature of any noncompliance and the steps Borrowers are taking or propose to take to remedy the same. Borrowers shall, promptly, upon request, furnish such other information concerning the condition, operations, financial or otherwise, of any Borrower as the Agent may from time to time request.

(b)Collateral Reports. Borrowers shall deliver to Agent within fifteen (15) days after the end of each month a report, reflecting the status as of the end of each month or for the month then ended, as the case may be, and certified by the Chief Executive Officer or Chief Financial Officer of Parent as being true and correct in all material respects, containing (i) a current detailed aging, by total and by Customer, of Borrowers’ Accounts, (ii) a current detailed aging, by total and by vendor, of Borrowers’ accounts payable, (iii) a schedule detailing loans and intercompany transfers to Magenta from any other Borrower, and (iv) a true, correct and complete copy of each new material contract entered into by any Borrower for the sale, lease or other provision of goods or services by such Borrower and for the lease or purchase of circuit capacity by any Borrower, all of which shall be set forth in a form and shall contain such information as is reasonably acceptable to Agent. At Agent’s request, Borrowers shall deliver such information more or less often than described above and such other information with respect to the Collateral, Borrowers or Borrowers’ business or financial condition as Agent may reasonably request from time to time.

(c)Tax Returns. Borrowers shall provide Agent with a copy of all federal tax returns of each Borrower no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

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(d)SEC Filings. Borrowers shall provide Agent with a copy of all reports and other filings made by Borrowers with the Securities and Exchange Commission no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

(e)BT Receivable. Borrowers will submit to Agent, promptly, and in any case not later than (i) one (1) day following each receipt of a BT Receivable Payment and (ii) two (2) Business Days after the end of each month, a reconciliation and report showing any amounts collected with respect of the BT Receivable, the amount left uncollected and, any issues, disputes and offsets with respect to collection of the BT Receivable, and such additional information with respect thereto as requested by Agent.

(f)Monthly Recurring Circuit Revenue and Recurring Circuit Margin. Borrowers will submit to Agent, as soon as available, and in any case not later than thirty (30) days after the end of each month, a summary of Monthly Recurring Circuit Revenue and Recurring Circuit Margin for the Strategic Sourcing Business Unit.

(g)Other Information. Borrowers will notify Agent as promptly as possible of any Default, any receipt by any Borrower of notice from any governmental authority that any Borrower has or may have violated any law, rule or regulation applicable to any Borrower or the terms or conditions of any permit or license any Borrower holds or is required to hold in connection with the conduct of such Borrower’s business, any amendment to any Borrower’s constituent documents and any change in any Borrower’s senior management, and the commencement of any material litigation, claim or action by or against any Borrower.

10. Inspection Rights; Expenses; Etc.

(a)Field Examinations; Inspections. Agent and any of the Lenders, shall have the right without hindrance or delay to conduct field examinations to inspect the Collateral, all other assets of Borrowers or any portion thereof, Borrowers’ books and records and all other aspects of Borrowers’ business, and to examine and make copies of Borrowers’ records, the Collateral and all other assets of Borrowers or any portion thereof, in each case wherever located, and Agent and any of the Lenders may enter upon each Borrower’s premises for such purposes, without notice, during business hours. Borrowers will assist Agent and any of the Lenders in whatever way necessary to make each such examination, and Borrowers agree to pay for such examinations as more fully described on Item 24 of the Addendum. Agent and any of the Lenders may discuss each Borrower’s financial condition with Borrowers’ independent accountants without liability to Agent or any of the Lenders or such accountants. Agent and any of the Lenders shall have full access to all records available to Borrowers from any credit reporting service, bureau or similar service and shall have the right to examine and make copies of any such records. Agent and any of the Lenders may exhibit a copy of this Agreement to such service and such service shall be entitled to rely on the provisions hereof in providing access to Agent and any of the Lenders as provided herein.

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(b)Performance by Agent. Agent may, from time to time at Agent’s option, perform any agreement of any Borrower hereunder which such Borrower fails to perform and take any other action which Agent deems necessary for the maintenance or preservation of any of the Collateral or Agent’s interest therein, and Borrowers agree to reimburse Agent immediately on demand for all of Agent’s expenses in connection with the foregoing (including, without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense is incurred until reimbursed by Borrowers.

11.Rights of Setoff, Application of Payments, Etc. Agent and any of the Lenders will be entitled to hold or set off all sums and all other property of any Borrower at any time to any Borrower’s credit or in Agent’s or any Lender’s possession (or the possession of any of Agent’s or Lender’s Affiliates) by pledge or otherwise or upon or in which Agent or any of the Lenders may have a Lien, as security for any and all of the Obligations. Recourse to the Collateral or other security for the Obligations will not at any time be required and each Borrower hereby waives any right of marshalling that such Borrower may have. Each Borrower’s obligation to pay or repay the Obligations is unconditional. Borrowers agree that, while a Default exists, Agent or any of the Lenders may take such action with regard to the custody and collection of Accounts as Agent or any of the Lenders may deem necessary. Each Borrower agrees that failure to take any action with regard to any given Account will not be unreasonable until and unless Agent receives a written request for specific action from Borrowers’ Agent with regard thereto and fails to respond thereto within a commercially reasonable time. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any of the Lenders from or on behalf of any Borrower, and each Borrower hereby irrevocably agrees that Agent or any of the Lenders shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or any of the Lenders against the Obligations, in such manner and in such order as the Lenders may deem advisable.

12.Attorney-in-Fact. Each Borrower hereby appoints and constitutes Agent as such Borrower’s attorney-in-fact: (a) at any time, (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Agent’s possession and to deposit or otherwise collect the same; (ii) to send verifications of Accounts to Customers; and (iii) to execute in such Borrower’s name any financing statements, affidavits and notices with regard to any and all Lien rights; and (b) while any Default exists, (i) to receive, open, and dispose of all mail addressed to such Borrower; (ii) to notify the postal authorities to change the address and delivery of mail addressed to such Borrower to such address as Agent may designate; (iii) to sign such Borrower’s name on any invoice or bill of lading relating to the Collateral, on drafts against Customers, and notices to Customers; (iv) to sign any agreement or certificate in connection with any insurance policy of any Borrower (including all documentation to receive benefit payments thereunder and to cancel such insurance policy and receive a refund of the unearned premium with respect thereto); and (v) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Agent has any commitment to Borrowers under this Agreement or otherwise (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and other than inchoate indemnification obligations and obligations under the warrant and the registration rights agreement).

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13. Defaults and Remedies.

(a)Defaults. For purposes of this Agreement, “Default” means the occurrence of any of the following events: (i) non-payment when due of any amount payable on any of the Obligations (in the case of non-payment of interest only, including, but not limited to any non-payment of PIK Interest pursuant to Section 3(b), if such non-payment continues one (1) Business Day after the date when due and for the avoidance of doubt, the default margin identified on Item 4 of the Addendum shall be applicable during the non-payment period); (ii) breach of any covenant or failure to perform any agreement or failure to meet any of any Credit Party’s obligations contained herein, in any other Loan Document or in any agreement out of which any of the Obligations arose if such failure continues for five (5) Business Days (excluding Sections 8, 9, 7(f), and 7(k), where no cure period shall be applicable); (iii) any statement, representation, or warranty made in writing in this Agreement, in any other Loan Document or in any other writing or statement at any time furnished or made or deemed furnished or made by any Credit Party to Agent proves to have been untrue in any material respect as of the date furnished or made or deemed furnished or made; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debenture Documents, or any Borrower’s default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 25 of the Addendum (after giving effect to any applicable notice and cure period); (v) suspension of the operation of any Borrower’s present business; (vi) any Borrower becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against any Borrower; (vii) entry of any judgment in excess of the amount set forth on Item 26 of the Addendum against any Borrower or creation, assertion, or filing of any judgment or tax Lien against the property of any Borrower, in each case which remains undischarged for thirty (30) days after such entry or filing; (viii) death or withdrawal of any partner of any Borrower which is a partnership, or dissolution, merger, or consolidation of any Borrower which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any Borrower; (x) sale, transfer or exchange, either directly or indirectly, of a controlling Stock interest of any Credit Party (without limiting the generality of the foregoing, a Default shall exist if (A) Parent shall cease to own, directly or indirectly, 100% of the Stock of any other Borrower or cease to have direct or indirect voting control of any other Borrower (excluding Vanco until the Final Closing), (B) any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty-five percent (25%) of the voting power of all classes of stock of Parent; (xi) appointment of a receiver for any of the Collateral or for any other property in which any Credit Party has an interest; (xii) seizure of any Collateral by any Person other than Agent; (xiii) any person identified on Item 27 of the Addendum shall for any reason cease to hold the office of the applicable Borrower set forth opposite such person’s name on Item 27 of the Addendum (or any such person shall cease to perform the duties generally associated with such office) and a replacement reasonably satisfactory to Agent shall not be appointed within 90 days; (xiv) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a Material Adverse Effect; (xv) payment by any Borrower on the Debenture Indebtedness or any other Subordinated Debt in violation of the Debenture Intercreditor Agreement or any other applicable subordination agreement; (xvi) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any Borrower’s employee pension benefit plans; (xvii) any event of default shall occur under (after giving effect to any applicable notice and cure period) under the Acquisition Documents (other than a termination of the Management Agreement as a result of the Final Closing); (xviii) the Final Closing shall have not occurred by ninety-one (91) days from the Agreement Date; or (xix) except for Transfer Applications (as such term is defined in the Interest Purchase Agreement) to be approved by the applicable regulatory authorities in California, Pennsylvania and Tennessee (which such Transfer Applications shall in any event be approved within one hundred twenty (120) days), any Transfer Application shall not have been approved by the earliest to occur of (A) expiration of the STA Requests unless replaced by a permanent authorization and (B) ninety (90) days from the date of this Agreement.

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(b)Remedies. If a Default occurs and is continuing, in each case without demand or notice to any Borrower, any other Credit Party or any other Person (unless such notice is expressly required hereunder or under applicable law), the Required Lenders may authorize and instruct the Agent to do any one of the following on behalf of the Lenders, all of which such actions are, subject to any applicable law to the extent any such law may not be waived, permitted under this Agreement:

(i)declare the entire principal amount of the Term Loan outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

(ii)notify Customers that the Accounts have been assigned to Agent and that Agent has a security interest therein, collect them directly, and charge the collection costs and expenses to Borrowers’ loan account.

(iii)exercise any right or remedy available to any Borrower under one or more contracts of such Borrower and sell or otherwise dispose of any such contract.

(iv)(A) exercise any of its remedies under any other Loan Document, (B) apply any cash collateral to the Obligations (without limiting the foregoing, Agent may instruct any bank or other financial institution holding any cash, certificate of deposit or other Collateral to pay over such Collateral to Agent), and (C) draw on any letter of credit issued for the benefit of Agent in connection with this Agreement or any other Loan Document and apply the proceeds thereof to the Obligations.

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(v)make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral. Borrowers authorize Agent or any of the Lenders to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any Lien which in Agent’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

(vi)ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

(vii)without regard to any waste, adequacy of the security or solvency of any Borrower, apply for the appointment of a receiver of the Collateral, to which appointment each Borrower hereby consents, whether or not foreclosure or repossession proceedings have been commenced hereunder or under any other Loan Document and whether or not a foreclosure sale or secured party sale has occurred.

(viii)cancel any insurance policy of any Borrower in exchange for a refund of the unearned premium with respect thereto, and each Borrower hereby authorizes any insurance company which has issued any such policy to make such payment directly to Agent for application to the Obligations;

(ix)exercise any of the remedies available to Agent as a secured party under the UCC as in effect in any applicable jurisdiction, or otherwise available to Agent under applicable law. Borrowers agree, upon demand by Agent or any of the Lenders, while a Default exists, to cease the sale or other disposition of the Collateral, except with Agent’s prior written consent, and to assemble at Borrowers’ expense all the Collateral at a convenient place acceptable to Agent. Agent may charge to Borrowers’ loan account and Borrowers will pay Agent upon demand all costs and expenses, including reasonable attorneys’ fees (including fees of attorneys that are regular salaried employees of Agent or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment, compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Agent or against any Borrower concerning any matter growing out of or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Agent pays any state, city, local, federal, or other tax or levy attributable to the Collateral (excluding taxes on income realized by Agent), Borrowers will repay to Agent the amount of tax so paid by Agent. Borrowers agree that Agent may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by Liens prior to Agent’s security interest. Borrowers will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Agent or any of the Lenders.

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(c)Notices. If any notice of intended disposition of the Collateral or of any other act by Agent is required by law or court order and a specific time period is not stated therein, such notice, if given five (5) Business Days before such disposition or act, in accordance with the provisions of Section 16(a), will be deemed reasonably and properly given.

(d)License. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and each Borrower agrees that all of its rights under all licenses and all franchise agreements shall inure to Agent’s benefit.

(e)Remedies Cumulative. Agent’s and any Lender’s rights and remedies under this Agreement and all other Loan Documents shall be cumulative. Agent and any of the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Agent or any of the Lenders of one right or remedy shall be deemed an election, and no waiver by Agent or any of the Lenders of any default on Borrowers’ part shall be deemed a continuing waiver. No delay by Agent or any of the Lenders shall constitute a waiver, election or acquiescence by it.

14. Agent.

(a)Appointment. Each Lender hereby irrevocably appoints and authorizes the Agent to perform the duties of the Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Term Loan outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to the Agent, and, subject to Section 2 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agent shall not have any liability to the Lenders for the Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Term Loan, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Term Loan and Agent Advances, for the Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Credit Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by the Agent of the rights and remedies specifically authorized to be exercised by the Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 14(c) of this Agreement, to take such action as the Agent deems appropriate on its behalf to administer the Term Loan and the Loan Documents and to exercise such other powers delegated to the Agent by the terms hereof or the other Loan Documents (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Term Loan), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of the Term Loan; provided, however, that the Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law.

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(b)Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the making and the continuance of the Term Loan hereunder and shall make its own appraisal of the creditworthiness of the Credit Parties and the value of the Collateral, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Term Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, the Agent shall provide to such Lender any documents or reports delivered to the Agent by the Credit Parties pursuant to the terms of this Agreement or any other Loan Document. If the Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender any time that the Required Lenders have instructed the Agent to act or refrain from acting pursuant hereto.

(c)Rights, Exculpation, Etc.The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agent (i) may treat the payee of the Term Loan as the owner thereof until the Agent receives written notice of the assignment or transfer thereof, pursuant to Section 16(f) hereof, signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including, without limitation, counsel to the Agent or counsel to the Credit Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counselor experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the Agent's Lien thereon, or any certificate prepared by any Borrower in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The Agent shall not be liable for any apportionment or distribution of payments made in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders.

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(d)Reliance.The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

(e)Indemnification. To the extent that the Agent is hot reimbursed and indemnified by any Credit Party, the Lenders will reimburse and indemnify the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including, without limitation, advances and disbursements made pursuant to Section 14(h); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from the Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 14(e) shall survive the payment in full of the Term Loan and the termination of this Agreement.

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(f)Agent Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of the Term Loan. The terms “Lenders” or “Required Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Required Lenders. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers as if it were not acting as the Agent pursuant hereto without any duty to account to the other Lenders.

(g)Successor Agent.

(i) The Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at least 30 Business Days' prior written notice to the Borrowers and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below.

(ii) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Agent, and the Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After the Agent's resignation hereunder as the Agent, the provisions of this Paragraph 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the other Loan Documents.

(iii) If a successor Agent shall not have been so appointed within said 30 Business Day period, the Agent shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above

(h)Collateral Matters.

(i) The Agent may from time to time make such disbursements and advances (“Agent Advances”) which the Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Term Loan and other Obligations or to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 16(j). The Agent Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate of interest then applicable to the Term Loan. The Agent Advances shall constitute Obligations hereunder. The Agent shall notify each Lender and the Borrowers in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation to its obligations pursuant to Section 14(e), each Lender agrees that it shall make available to the Agent, upon the Agent's demand, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to the Agent by such Lender, the Agent shall be entitled to recover such funds on demand from such Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Agent at the Default Rate.

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(ii) The Lenders hereby irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral upon termination of the Total Commitment and payment and satisfaction of the Term Loan and all other Obligations which have matured and which the Agent has been notified in writing are then due and payable; or constituting property being sold or disposed of in the ordinary course of Borrower's or any of its Subsidiaries' business or otherwise in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which neither Borrowers nor any of their Subsidiaries owned any interest at the time the Lien was granted or any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 14(h)(i).

(iii) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 14(h(ii)), each Lender agrees to confirm in writing, upon request by the Agent, the authority to release Collateral conferred upon the Agent under Section 14(h)(ii). Upon receipt by the Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Credit Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent and the Lenders upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Credit Party in respect of) all interests in the Collateral retained by Borrowers or any of their Subsidiaries.

(iv) The Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Credit Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent in this Section 14(h) or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein.

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(i)Agency for Perfection. Each Lender hereby appoints the Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and the Agent and each Lender hereby acknowledges that it holds possession of or otherwise controls any such Collateral for the benefit of the Agent and the Lenders as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. In addition, the Agent shall also have the power and authority hereunder to appoint such other sub-agents as may be necessary or required under applicable state law or otherwise to perform its duties and enforce its rights with respect to the Collateral and under the Loan Documents. Borrowers by their execution and delivery of this Agreement hereby consents to the foregoing.

15.Indemnification.

(a)Borrowers jointly and severally agree to defend, indemnify, and hold harmless Agent and Agent’s and any of the Lender’s participants, directors, officers, employees, Affiliates, representatives, attorneys and agents (each an “Indemnified Person”) from and against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or threatened release of any hazardous materials in connection with any Borrower’s business on, at or from any property at any time owned or operated by any Borrower, including, without limitation, reasonable attorneys’ and consultants’ fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. Without limiting the foregoing and for purposes other than Capstone Investments, Borrowers represent and warrant that there has been no loan broker or investment banker involved in connection with the transactions contemplated hereby, and Borrowers agree to indemnify and hold Agent and any of the Lenders and their participants harmless from any claim of compensation payable to any loan broker or investment banker in connection with the transactions contemplated hereby.

(b)All payments by any Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any and all taxes other than income taxes imposed on Agent or any of the Lenders (“Indemnified Taxes”), unless such Taxes are required by law or the administration thereof to be withheld or deducted. If any Borrower, Agent or Lender or any participant is required by applicable law to deduct or pay any Indemnified Taxes in respect of any payment by or on account of any obligation of a Borrower hereunder or under any other Loan Document, then, if requested by Agent, any Lender or any participant, the sum payable shall be increased by that Borrower by such amount as is necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section), Agent and any of the Lenders and their participants receive an amount equal to the sum Agent and any of the Lenders and such participants would have received had no such deductions or payments been required.

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(c)Borrowers shall indemnify Agent, the Lenders and their participants, within 5 days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, any of the Lenders and their participants and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrowers’ Agent by Agent or any participant shall be conclusive absent manifest error.

(d)As soon as practicable after any payment of Indemnified Taxes by a Borrower to a governmental authority, Borrowers’ Agent shall deliver to Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

16.General Provisions.

(a)Notices. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile transmission, upon transmittal if confirmed by the sender’s facsimile device; provided that in the case of notices to Agent, Agent will be charged with knowledge of the contents thereof only when such notice is actually received by Agent. A telephonic notice to Agent as understood by Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. Notices to Agent or Borrowers will be sent to the addresses set forth on Item 28 of the Addendum, or any other address for Borrowers or Agent of which the other is notified by like notice.

(b)Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Term Loan payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the Term Loan payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Term Loan that is required for the Lenders or any of them to take any action hereunder, (iv) amend the definition of “Required Lenders” or “Pro Rata Share”, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents) or subordinate any Lien granted in favor of the Agent for the benefit of the Lenders (except as otherwise provided in this Agreement and the other Loan Documents), or release the Borrower or (vi) amend, modify or waive this Section 16(b) of this Agreement, in each case, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents.

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(c)No Waiver. No waiver hereunder will be valid unless in writing signed by Required Lenders (or by Agent at the request of the Required Lenders) and then only to the extent therein stated. No delay or failure on Agent’s or any Lender’s part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Agent’s or any Lender’s right to exercise any other right or remedy.

(d)Time of Essence. Time is of the essence of this Agreement.

(e)Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f)Assignments and Participations.

(i) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Credit Party and the Agent and each Lender and their respective successors and assigns; provided, however, that none of the Credit Parties may assign or transfer any of its rights hereunder without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void.

(ii) Each Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Term Loan made by it); provided, however, that (A) such assignment is in an amount which is at least $500,000 or a multiple of $100,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $500,000 or a multiple of $100,000 in excess thereof), (B) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, and such parties shall deliver to the Agent a processing and recordation fee of $5,000 (except the payment of such fee shall not be required in connection with an assignment by a Lender to an Affiliate of such Lender or Related Fund of such Lender), and (C) no written consent of the Agent shall be required in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Agent (or such shorter period as shall be agreed to by the Agent and the parties to such assignment), (1) the assignee thereunder shall become a “Lender” hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (2) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything contained to the contrary in this Section 16(f)(ii), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agent; provided, that (x) the Borrowers and the Agent may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned until such Lender and its assignee shall have executed and delivered an Assignment and Acceptance to the Agent for recordation and (y) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agent or any other Person shall not affect the legality, validity or binding effect of such assignment.

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(iii) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (A) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (B) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any of its Subsidiaries or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (C) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (D) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (E) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (F) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(iv) The Agent shall, on behalf of the Borrowers, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Term Loan (the “Registered Loans”) owing to each Lender from time to time. Other than in connection with an assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender shall maintain a register comparable to the Register.

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(v) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any promissory notes subject to such assignment, the Agent shall, if the Agent consents to such assignment and if such Assignment and Acceptance has been completed (A) accept such Assignment and Acceptance and (B) record the information contained therein in the Register.

(vi)A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register) (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register), together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same) on the Register, the Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.

(vii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the “Participant Register”). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(viii) Any foreign Person who purchases or is assigned or participates in any portion of such Registered Loan shall comply with Section 2(o).

(ix) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Term Loan made by it); provided, that (A) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (C) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (1) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Term Loan, (2) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Term Loan or the fees payable under this Agreement, or (3) actions directly effecting a release of all or a substantial portion of the Collateral or any Credit Party (except as set forth in Section 14(h) of this Agreement or any other Loan Document).

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(g)Governing Law; Submission to Jurisdiction, Service, Etc. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States Federal Court sitting in New York, New York or any New York state court sitting in New York, New York in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents, and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Each Borrower waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Parent at Borrowers’ address for notices pursuant to this Agreement, and service so made shall be deemed to be completed with respect to all Borrowers five (5) days after the same shall have been so deposited in the United States mails. Nothing herein shall limit the right of Agent or any of the Lenders to bring proceedings against any Borrower or any Affiliate of any Borrower in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent or any of the Lenders or any other holder of any Obligations, or any Affiliate of Agent or any of the Lenders or any other holder of any Obligations, involving, directly or indirectly, any matter in any way arising out of, related to or connected with any Loan Document shall be brought only in a United States Federal Court or New York state court sitting in New York, New York. Nothing in this Agreement shall be deemed or operate to affect the right of Agent or any of the Lenders to serve legal process in any other manner permitted by law or to preclude the enforcement by Agent or any of the Lenders of any judgment or order obtained in such forum or the taking of any action under this Agreement or any other Loan Document to enforce same in any other appropriate forum or jurisdiction.

(h)Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS, EACH LENDER AND AGENT HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. EACH BORROWER, EACH LENDER AND Agent ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

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(i)Waiver of Hearing. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING AGENT, ANY OF THE LENDERS, THEIR SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH Agent OR ANY OF THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT, IF Agent OR ANY OF THE LENDERS FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW.

(j)Expenses. Borrowers shall pay on demand all of Agent’s and any of the Lender’s costs and expenses in connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of this Agreement, including the reasonable fees and out-of-pocket expenses of Agent’s and any of the Lender’s counsel, in each case whether incurred on, prior or subsequent to the Agreement Date. In addition, Borrowers shall pay any and all stamp and other taxes and recording and filing fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. All provisions in this Agreement providing for the payment or reimbursement of Agent’s or any of the Lender’s attorneys’ fees and expenses include, without limitation, such fees and expenses incurred pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code.

(k)Execution in Counterparts; Execution by Fax or E-Mail; Waiver of Acceptance. This Agreement may be executed in separate counterparts, all of which shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail shall be equally as effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Any party delivering an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail also shall deliver an original executed counterpart of this Agreement or such other Loan Document, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement or such other Loan Document. To the fullest extent permitted by applicable law, each Borrower waives notice of Agent’s and any of the Lender’s acceptance of this Agreement and the other Loan Documents.

49

(l)No Third-Party Beneficiaries. Except as expressly set forth herein, neither (i) any stockholder or owner of any other equity interest in any Borrower, (ii) any of Borrower’s employees or creditors (other than Agent and any of the Lenders and their Affiliates), nor (iii) any other Person claiming by or through any Borrower shall be entitled to rely on this Agreement or have any rights, remedies or claims against Agent or any of the Lenders or any Affiliates of them under or in connection with this Agreement.

(m)Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Agent, the Lenders and Borrowers and supersede all prior agreements and understandings relating to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

50

IN WITNESS WHEREOF, the undersigned have executed this Term Loan and Security Agreement as of the day and year first above written.

Borrowers:

CAPITAL GROWTH SYSTEMS, INC.

By:

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:

Name:

Title:

CENTREPATH, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:

Name:

Title:

FNS 2007, INC.

By:

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL CAPACITY DIRECT, LLC

By:

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:

Name:

Title:

52

Agent and Lender:

ACF CGS, L.L.C.

By:

Name:

Title:

EX-10.9 10 v132473_ex10-9.htm

SECURED TERM LOAN PROMISSORY NOTE

$8,500,000 November __, 2008 Chicago, Illinois

FOR VALUE RECEIVED, the undersigned, CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein collectively as the “Borrowers”), jointly and severally promise to pay to the order of ACF CGS, L.L.C., a Delaware limited liability company as administrative agent (the “Agent”), at the office of the Agent located at 570 Lexington Avenue, 40^th Floor New York, NY 10022 or such other office as the holder hereof may from time to time designate in writing, in lawful money of the United States of America and in immediate available funds, the principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), together with interest from and after the date hereof on the unpaid principal balance outstanding at a variable rate per annum as set forth in the Term Loan and Security Agreement dated as of even date herewith, between Agent, Borrowers and Lender and the other lenders from time to time party thereto (as amended from time to time, the “Term Loan Agreement”).

This Secured Term Loan Promissory Note (the “Note”) is issued pursuant to the Term Loan Agreement and is entitled to all of the benefits and security of the Term Loan Agreement. All of the terms, covenants and conditions of the Term Loan Agreement and the Loan Documents (as defined in the Term Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Term Loan Agreement.

The rate of interest in effect hereunder shall be calculated with reference to the Section 3, in the Term Loan Agreement. The interest due hereunder shall be computed in the manner provided in the Term Loan Agreement.

The principal and accrued interest on this Note shall be due and payable on the dates and in the manner set forth in the Term Loan Agreement.

Notwithstanding the forgoing, the entire unpaid principal balance and any accrued interest on this Note shall be due and payable immediately upon any acceleration of the indebtedness evidenced by this Note by the Lender pursuant to the Term Loan Agreement or upon any termination of the Term Loan Agreement.

This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2(c) of the Term Loan Agreement. Borrowers may also prepay this Note, in whole or in part, in the manner provided in Section 2(d)of the Term Loan Agreement.

Upon the occurrence of an Default, the Agent and the Lenders shall have all rights and remedies set forth in Section 13 of the Term Loan Agreement and the other Loan Documents.

Time is of the essence with respect to payments due under this Note. To the fullest extent permitted by applicable law, the Borrowers and every endorser and guarantor (if any) of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Agent or any of the Lenders in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Agent or any of the Lenders of any right or remedy preclude any other right or remedy. Agent or any of the Lenders, at their option, may enforce their rights against any collateral securing this Note without enforcing their rights against the Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrowers. The Borrowers agree that, without releasing or impairing Borrowers’ liability hereunder, Agent, for the benefit of the Lenders may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note.

THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESSES SPECIFIED IN ITEM 28 OF THE ADDENDUM TO THE TERM LOAN AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

2

IN WITNESS WHEREOF, the undersigned have executed this Note to be duly executed and delivered by an officer thereunto duly authorized as of the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:  

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:  

Name:

Title:

CENTREPATH, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:  

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:  

Name:

Title:

3

FNS 2007, INC.

By:  

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:  

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL

CAPACITY DIRECT, LLC

By:  

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:  

Name:

Title:

EX-10.10 11 v132473_ex10-10.htm

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (OR SUCCESSOR RULE THERETO) OR (III) UNLESS THE SALE, ASSIGNMENT OR TRANSFER MEETS THE REQUIREMENT OF REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

CAPITAL GROWTH SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:[_____]	Number of Shares: 12,000,000
	Date of Issuance:November ___, 2008

Capital Growth Systems, Inc., a Florida corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ACF CGS, L.L.C., a Delaware limited liability company, the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Twelve Million (12,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the "Warrant Shares") at the Warrant Exercise Price (as defined in Section 1(b) below. Notwithstanding anything to the contrary contained herein, prior to the “Amendment Date” as defined below, this Warrant shall only be exercisable into that number of Warrant Shares that are authorized and reserved for issuance hereunder. For purposes hereof, the “Amendment Date” shall be the first date after the date of this Warrant that the Company files articles of amendment to its articles of incorporation (the “Amendment”) with the Florida Secretary of State increasing its authorized Common Stock to an amount no less than 600,000,000 shares (before giving effect to any forward or reverse split that may occur on or before the date of such filing).

SECTION 1

(a)Loan and Security Agreement. This Warrant was issued pursuant to that certain Loan and Security Agreement, dated as of November__, 2008, by and among the Company, Global Capacity Group, Inc., a Texas corporation (“GCG”), Centrepath, Inc., a Delaware corporation (“Centrepath”), 20/20 Technologies, Inc., a Delaware corporation (“20/20 Inc.”), 20/20 Technologies I, LLC, a Delaware limited liability company (“20/20 LLC”), Nexvu Technologies, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), Magenta Netlogic Limited, a United Kingdom corporation (“Magenta”), Capital Growth Acquisition, Inc., a Delaware corporation (“CG Acquisition”), and Holder (as such agreement may be amended from time to time as provided in such agreement, the "Loan Agreement").

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i)“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which banks in New York, New York are otherwise closed for transacting business with the public.

(ii)"Common Stock" means (i) the Company's common stock, $0.0001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(iii)"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)"Expiration Date" means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(v)"Option" means any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(vi)"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

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(vii)"Principal Market" means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.

(viii)"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Holder, as such agreement may be amended, restated or modified and in effect from time to time.

(ix)"Securities Act" means the Securities Act of 1933, as amended.

(x)"Trading Day" means any day on which the Common Stock is traded on the Principal Market; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(xi)"Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xii)"Warrant Exercise Price" shall be equal to, with respect to any Warrant Share, $0.24, subject to adjustment as hereinafter provided.

(xiii)"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) ("Bloomberg") through its "Volume at Price" functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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SECTION 2. EXERCISE OF WARRANT

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of the Holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the second (2nd) Business Day (the "Warrant Share Delivery Date") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the "Exercise Delivery Documents"), (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC as they would relate to this Warrant, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the "Deemed Issuance Date"), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder's Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder. The Company shall cause at its sole and exclusive expense the investment banking firm to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm's determination or calculation, as the case may be, shall be deemed conclusive absent error.

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(b)If this Warrant is submitted for exercise, as may be required by Section 2(f), and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the "Warrant Delivery Date") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Loan Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall: (i) cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a); or (ii) cash damages accrue in the aggregate to an amount exceeding twelve percent (12%) of the product of the number of shares of Common Stock subject to this Warrant and the original Exercise Price for the Common Stock subject to this Warrant. Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Loan Agreement), 110% of the amount that (A) the Holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.

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(e)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

  B

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being exercised;

B = the arithmetic average of the Weighted Average Price of the Common Stock on each of the five (5) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(f)Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:

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ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

SECTION 3. COVENANTS AS TO COMMON STOCK

The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant; provided, however, that the Company shall effect the Amendment no later than 180 days following the date of this Warrant. Should the Company fail to effect the Amendment within such time period, then the number of shares to be purchased under this warrant shall be increased by 2% for each 30 day period thereafter that the Company fails to effect the Amendment.

(d)If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such securities exchange, or quotation system or market.

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(e)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.0001 per share, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets.

SECTION 4. TAXES

The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

SECTION 5. WARRANT HOLDER NOT DEEMED A SHAREHOLDER

No Holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

SECTION 6. REPRESENTATIONS OF HOLDER

The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.

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SECTION 7. OWNERSHIP AND TRANSFER

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement to the extent provided therein and the initial Holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement.

SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Warrant Date (as defined in Section 12), the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company), for a consideration per share less than a price (the "Applicable Price") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share; provided however, no such adjustment shall be made to the Warrant Exercise Price as a result of any "Exempted Issuance." For purposes hereof, "Exempted Issuance" means any issuance or deemed issuance of shares of Common Stock: (i) pursuant to an Approved Stock Plan, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed the greater of one percent (1.0%) of the number of outstanding shares of Common Stock at the end of the immediately preceding calendar year or the number of shares currently authorized for issuance pursuant to the Company’s 2008 Long Term Incentive Plan; or (ii) that is deemed to constitute an “Exempt Issuance” as that term is defined in the form of Securities Purchase Agreement dated on or about the date of this Warrant calling for the purchase of up to $10,500,000 of convertible debentures with warrants (the proceeds of which are to be used in part for the purchase of the limited liability company interests (“LLC Interests”) of Vanco Direct USA, LLC (the “Sub Debt Purchase Agreement”); (iii) the issuance of the securities subject to the Sub Debt Purchase Agreement or the issuance of securities with respect to a convertible note for up to $4,000,000 that may be issued to the seller of the LLC Interests to the Company; or (iv) that is pursuant to an “Excluded Transaction.” For purposes hereof, the term "Approved Stock Plan" means any employee benefit plan that has been approved by the Board of Directors and stockholders of the Company, pursuant to which shares of Common Stock may be issued solely to consultants, employees, officers and/or directors for services provided to the Company or any of its Subsidiaries (and not, for the avoidance of doubt, for equity capital raising purposes). For purposes hereof, an "Excluded Transaction" shall be any issuance of equity securities of the Company (or warrants, options, convertible rights or other rights to acquire equity securities): (A) to a provider of goods or services to the Company, in connection with an acquisition of a business or assets; or (B) in connection with the outstanding rights of any holder of an option, warrant or convertible security that is issued and outstanding on or before the date of this Warrant; provided that such option, warrant or convertible security is not amended or adjusted after the date of this Warrant to increase the number of securities into which it is convertible, exchangeable or exercisable or to decrease the exercise, exchange or conversion price. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

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(b)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price other than pursuant to an Excluded Transaction or Exempted Issuance), the following shall be applicable:

(i)Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

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(ii)Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed after the date of issuance of this Warrant in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at least as of any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price), the following shall be applicable:

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(i)Calculation of Consideration Received. In case any Options are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the Black-Scholes Value (as defined below) of such Options (the greatest of (I), (II) and (III), the "Option Consideration") and, for purposes of applying the provisions of this Section 8, the Option Consideration shall be allocated pro rata among all the shares of Common Stock issuable upon exercise of such Options to determine the consideration per each such share of Common Stock and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Common Stock represented thereby), less the Option Consideration. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

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(iii)Black-Scholes Value. The "Black-Scholes Value" of any Options shall mean the sum of the amounts resulting from applying the Black-Scholes pricing model to each such Option, which calculation is made with the following inputs: (i) the "option striking price" being equal to the lowest exercise price possible under the terms of such Option on the date of the issuance of such Option (the "Valuation Date"), (ii) the "interest rate" being equal to the Federal Reserve US H.15 T Note Treasury Constant Maturity 1 Year rate on the Valuation Date (as reported by Bloomberg through its "ALLX H15T" function (accessed by typing "ALLX H15T" [GO] on a Bloomberg terminal, and inserting the date of the Valuation Date and then looking at the row entitled "Treas Const Mat 1 Year" under the column entitled "Previous Value")), or if such rate is not available then such other similar rate as mutually agreed to by the Company and the Holder, (iii) the "time until option expiration" being the time from the Valuation Date until the expiration date of such Option, (iv) the "current stock price" being equal to the Weighted Average Price of the Common Stock on the Valuation Date, (v) the "volatility" being the 100-day historical volatility of the Common Stock as of the Valuation Date (as reported by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to zero. Within three (3) Business Days after the Valuation Date, each of the Company and the Holder shall deliver to the other a written calculation of its determination of the Black-Scholes Value of the Options. If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes Value of the Options within five (5) Business Days of the Valuation Date, then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Valuation Date. The Company shall cause such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after the Valuation Date. Such investment banking firm's calculation of the Black-Scholes Value of the Options shall be deemed conclusive absent error. The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

(d)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case:

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(i)the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the Holder shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the amount of the assets that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

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(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE

(a)In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder, without regard to any limitation on exercise thereof) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

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SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT

If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

SECTION 11. NOTICE

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company: Capital Growth Systems, Inc.

500 W. Madison - Suite 2060

Chicago, Illinois 60661

Attention: Chief Executive Officer

Facsimile: (312) 673-2422

with a copy to: Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Attention: Mitchell D. Goldsmith

Facsimile: (312) 527-3194

If to Holder: ACF CGS, L.L.C.

c/o Archer Capital Management

570 Lexington Avenue - 40^th Floor

NY, NY 10022

Attention: Gary Katz

Facsimile: 212-319-1033

With a copy to: Jeffrey H. Wolf, Esq.

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Facsimile No.: (310) 310-6001

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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SECTION 12. DATE

The date of issuance of this Warrant is the date first set forth above (the "Warrant Date"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

SECTION 13. AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW

The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York.

SECTION 15. RULES OF CONSTRUCTION

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) each accounting term not otherwise defined in this Warrant has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word "including" in this Warrant shall be by way of example rather than limitation.

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SECTION 16. NO EFFECT UPON LENDING RELATIONSHIP

Anything herein contained to the contrary notwithstanding, nothing contained in this Warrant shall affect, limit or impair the rights and remedies of Holder, any of its affiliates, or its successors and transferees, or any other lender in their respective capacities as lenders to the Company or any of its Subsidiaries (each, a "Subject Person") pursuant to any agreement under which the Company or any of its subsidiaries has borrowed money. Without limiting the generality of the foregoing, no Subject Person, in exercising its rights as a lender, shall have any duty to consider (i) its status as a direct or indirect shareholder or other equityholder of the Company, (ii) the interests of the Company or any of its subsidiaries, or (iii) any duty it may have to any other direct or indirect shareholder or other equityholder of the Company, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of __________, 2008.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THIS WARRANT

CAPITAL GROWTH SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.Form of Warrant Exercise Price. The holder intends that payment of the Warrant Exercise Price shall be made as:

____________a "Cash Exercise" with respect to ___________________ Warrant

Shares; and/or

____________a "Cashless Exercise" with respect to ______________ Warrant

Shares (to the extent permitted by the terms of the Warrant).

2.Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number (if electronic book entry transfer):

Date:

 Name of Registered Holder

 By:

 Name:

 Title:

A-1

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock & Transfer Company or the currently existing transfer agent if other than such entity ("Transfer Agent") to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by Transfer Agent.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Capital Growth Systems, Inc., a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated: ____________________, 200___

 Name:

 Title:

B-1

EX-10.11 12 v132473_ex10-11.htm

Exhibit 10.11

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November ____, 2008 between Capital Growth Systems, Inc., a Florida corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Administrator” means Vanco plc (in administration).

“Administrator Debenture” means the debenture in the form of Exhibit A-1 hereto, issuable to the administrator pursuant to the terms of the ILPA (as defined below) in the original principal amount of $3,000,000.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Archer Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and the Archer Purchasers in the form of Exhibit H-1 attached hereto

“Archer Purchasers” means the purchasers of the securities issued pursuant to the Loan and Security Agreement dated as of the date hereof by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Loan Agreement”).

“Authorized Share Approval” means (i) the vote by the stockholders of the Company to approve an amendment to the Company’s articles or certificate of incorporation that increases the number of authorized shares of Common Stock to at least 600,000,000 shares of Common Stock (the “Amendment”) and (ii) the filing by the Company of the Amendment with the Secretary of State of the State of Florida and the acceptance of the Amendment by the Secretary of State of the State of Florida.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

“Closing Statement” means the Closing Statement in the form Annex A attached hereto.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive Common Stock.

“Company Counsel” means Shefsky & Froelich, with offices located at 111 E. Wacker Drive, Suite 2800, Chicago, Illinois 60601.

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures” means the Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

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“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).

“Effective Date” means the earlier of (a) the effective date of a Registration Statement and (b) the date that all of Underlying Shares issuable pursuant to the Transaction Documents may be sold or are eligible for sale under Rule 144, without volume or manner-of-sale restrictions.

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder (including but not limited to any issuance of Common Stock with respect to the redemption of the Debentures and the debentures issued pursuant to the March Purchase Agreement or payment of any liquidated damages with respect to the Debentures, the Warrants and this Agreement and the debentures and warrants issued pursuant to the March Purchase Agreement) and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) for purposes of Section 4.12 only, an issuance of Common Stock or Common Stock Equivalents, without registration rights, for cash consideration, to the global carrier referenced in the Company’s press release dated February 20, 2008, provided, however, any such issuance of Common Stock Equivalents shall be expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (e) for purposes of Sections 4.12 and 4.13 only, securities (including shares of Common Stock, warrants and Common Stock Equivalents) issued in connection with the Archer Loan Agreement the terms of which are described in the Disclosure Schedules hereto and the Administrator Debenture.

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“FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“March Purchase Agreement” means the Securities Purchase Agreement, dated March 11, 2008, by and among the Company and each of the purchasers signatories thereto for the issuance of debentures and warrants.

“March Purchasers” means the purchasers of the securities issued pursuant to the March Purchase Agreement and any successors in interest to any of the debentures and warrants issued pursuant to the March Purchase Agreement (by way of assignment or cancellation and reissuance of the same).

“March Purchasers Intercreditor Agreement” means the intercreditor agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and each of the March Purchasers in the form of Exhibit H-2 attached hereto

“March Registration Rights Agreement” means the Registration Rights Agreement, dated March 11, 2008, by and among the Company and each of the March Purchasers.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

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“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.65.

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

“Registration Statement” means a registration statement filed pursuant to Section 4.18, registering the resale, by the Purchasers, of all of the Underlying Shares, or any portion thereof.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit E attached hereto.

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“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees, the Intercreditor Agreement, and any other documents and filing required thereunder in order to grant the Purchasers a security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds or, with respect to (i) Aequitas Catalyst Fund, LLC - Series C (“Aequitas”), through the conversion of its bridge note dated September 29, 2008, in the original principal amount of $500,000 (the “Aequitas Note”) to a debenture and warrant hereunder and (ii) Capstone Investments (“Capstone”), through the irrevocable waiver of its right to all or a portion of its cash fee of 7% of the cash proceeds hereunder and under the Archer Loan Agreement.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F attached hereto.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

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“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Security Agreement, the Subsidiary Guarantee, the Archer Intercreditor Agreement, the March Purchasers Intercreditor Agreement, the Voting Agreement, the Consent, Waiver and Amendment Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current transfer agent of the Company with a mailing address of 17 Battery Place, New York, New York 10004 and a facsimile number of 212-509-5150, and any successor transfer agent of the Company.

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures.

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

“Voting Agreement” means the written agreement, in the form of Exhibit G attached hereto, of all of the officers, directors, and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favor of the Authorized Share Approval, amounting to, in the aggregate, at least 50.1% of the issued and outstanding Common Stock.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years from the date of the Authorized Share Approval, in the form of Exhibit C attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to $17,325,000, in the aggregate, in principal amount of the Debentures (with an aggregate Subscription Amount of up to $10,500,000). Each Purchaser shall deliver to the Company via wire transfer or a certified check, immediately available funds equal to its cash Subscription Amount (and, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement) and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the parties shall mutually agree.

2.2Deliveries.

(a)On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii)a legal opinion of Company Counsel, in substantially the form of Exhibit D attached hereto;

(iii)a Debenture with a principal amount equal to such Purchaser’s Subscription Amount multiplied by 1.65, registered in the name of such Purchaser;

(iv)the Voting Agreements, duly executed by all officers, directors and 10% stockholders of the Company;

(v)a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 75% of such Purchaser’s Subscription Amount divided by $0.24, with an exercise price equal to $0.24, subject to adjustment therein;

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(vi)the Security Agreement, duly executed by the Company, VDUL (as defined below) and each Subsidiary, along with all of the Security Documents (including, without limitation, documents and agreements evidencing the Purchasers’ security interest in the assets of the Company’s Subsidiary that is organized in the UK), including the Subsidiary Guarantee, duly executed by the parties thereto;

(vii)the Archer Intercreditor Agreement, duly executed by the Company and the Archer Purchasers; and

(viii)the March Purchasers Intercreditor Agreement, duly executed by the Company and each of the March Purchasers.

(b)On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s cash Subscription Amount by wire transfer to the account as specified in writing by the Company (or, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement);

(iii)the Security Agreement duly executed by such Purchaser;

(iv)the Archer Intercreditor Agreement duly executed by such Purchaser; and

(v)the March Purchasers Intercreditor Agreement duly executed by such Purchaser.

2.3Closing Conditions.

(a)The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

(iii)the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

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(b)The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii)the delivery of a lock-up agreement, in the form attached hereto as Exhibit J, duly executed by each of the Administrator and Capstone, the Company and the Transfer Agent;

(iv)all existing debtholders of the Company and its Subsidiaries, with the exception of the Excepted Debtholders, as that term is defined herein (each, an “Existing Debtholder” and together, the “Existing Debtholders”), shall each have executed and delivered to the Purchasers an agreement whereby each Existing Debtholder shall agree, that all amounts owed to it shall not mature or require payments of any nature prior to the repayment of all amounts due under the Debentures, and whereby such indebtedness is made expressly subordinate in right of payment to the indebtedness evidenced by the Debentures, as reflected in a written agreement reasonably acceptable to, and approved by, the Purchasers. The term the Excepted Debtholders includes the March Purchasers, the Archer Purchasers and such other debtholders described on Schedule 2.3(b)(iii)attached hereto (together, the “Excepted Debtholders”);

(v)the delivery of a consent, waiver and amendment agreement, in the form attached hereto as Exhibit I duly executed by each March Purchaser (the “Consent, Waiver and Amendment Agreement”);

(vi)the Interest and Loan Purchase Agreement (“ILPA”) among Capital Growth Acquisition, Inc. (“Acquisition”), Vanco Direct USA, LLC (“VDUL”) and the Administrators for the estate of Vanco, plc (“Administrators”) shall have been duly executed on terms and conditions described in the Disclosure Schedules hereto, and the transactions consummated thereunder shall have been consummated subject only to the conveyance of the VDUL limited liability company interest, which shall be subject only to certain post-closing state regulatory filings described on Schedule 3.1(m)(A) hereto or the passage of time as further described on the Disclosure Schedules hereto;

(vii)the closing of the Archer Loan Agreement, with gross proceeds of not less than $8,500,000 to the Company and its Affiliates, shall have been consummated prior to or contemporaneous with the Closing hereunder on terms and conditions described in the Disclosure Schedules (provided, the aggregate principal amount of the Senior Debt shall not exceed $10,500,000), and the Company shall have delivered evidence thereof to the Purchasers;

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(viii)there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

(ix)from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

(a)Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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(c)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(d)No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents and the consummation by it to which it is a party of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) the filings set forth in Schedule 3.1(e) required under the ILPA to obtain necessary FCC and state commerce commission approvals to the change in control of VDUL (collectively, the “Required Approvals”).

(f)Issuance of the Securities. The Securities (other than the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Subject only to the Authorized Share Approval, the Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

(g)Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act or as reflected on Schedule 3.1(g). Except as set forth on Schedule 3.1(g)(i), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g)(ii), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth on Schedule 3.1(g)(iii), no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as described on Schedule 3.1(h), the Company has never been an issuer subject to Rule 144(i) under the Securities Act. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Material Changes. Other than as set forth on Schedule 3.1(i), since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice or in connection with the transaction contemplated by this Agreement and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement and the other transactions contemplated by the Transaction Documents or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

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(j)Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as set forth on Schedule 3.1(j). There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(k)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. Except as disclosed on Schedule 3.1(k), the Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(l)Compliance. Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(m)Regulatory Permits. Except as disclosed on Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n)Title to Assets. Except for the liens set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

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(o)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(p)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in the amount of $10.0 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q)Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

(r)Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on Schedule 3.1(r), the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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(s)Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, except as set forth on Schedule 3.1(s). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(t)Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

(v)Registration Rights. Other than the persons specified on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

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(w)Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(x)Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(y)Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Archer Loan Agreement and the ILPA, the material terms of which are set forth on Schedule 3.1(y) (all of which shall be publicly disclosed contemporaneous with the disclosure of this Agreement as required by Section 4.6), the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

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(z)No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(aa)Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the projected cash flow of the Company from its future operations, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

(bb)Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

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(cc)No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(dd)Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ee)Accountants. The Company’s present accounting firm is Plante Moran. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act. The Company has advised that it is in the process of retaining a new accounting firm. The Company warrants that it shall retain a new accounting firm duly registered as a public accounting firm as required by the Exchange Act and that such new firm shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending December 31, 2008.

(ff)Seniority. Except for the Senior Debt, as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby), or as otherwise set forth on Schedule 3.1(ff).

(gg)No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and except as noted in Schedule 3.1(gg), the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

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(hh)Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(ii)Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

(jj)Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

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3.2Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)Organization; Authority. Such Purchaser if an entity, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which a Purchaser is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Notwithstanding the foregoing, Midsummer Investment Ltd. (“Midsummer”) has been approached by an institutional accredited investor that was introduced to Midsummer by the placement agent for this transaction (the “Potential Purchaser”) about purchasing a portion of its Securities purchased hereunder after the Closing in a private transaction.  Midsummer represents there are no present understandings or agreements to transfer any of its Securities to such Potential Purchaser, however, any such transfer otherwise in accordance with the provisions of Section 4.1(a) hereof shall in no way be deemed a breach of Midsummer’s representations and warranties hereunder or under any other Transaction Document.

(c)Purchaser Status. At the time such Purchaser was offered the Securities, such Purchaser was, and as of the date hereof such Purchaser is, and on each date on which such Purchaser exercises any Warrants or converts any Debentures such Purchaser will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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(d)Experience of Such Purchaser. Such Purchaser, either alone or together with his or its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

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(a)The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities , including, if the Securities are subject to registration pursuant to Section 4.18, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

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(c)Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including a Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if promptly after the Effective Date required by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144, without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)(i)In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the second Trading Day following the Legend Removal Date (the “Legend Removal Deadline”) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

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(ii)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.1(d)(i) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.1(d)(i) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Legend Removal Deadline, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(e)Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

4.2Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information; Public Information.

(a)If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60^th calendar day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. Upon a cashless exercise of the Warrant, the holding period for purpose of Rule 144 shall tack back to the original date of issuance of such Warrants.

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(b)At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(c)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.3(b) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.3(b) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Public Information Failure, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

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4.4Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5Conversion and Exercise Procedures. Each of the Purchasers agrees the he/she/it will not convert their Debenture or exercise their Warrant until such time as the Authorized Share Approval has occurred. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debenturesset forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.6Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with (i) any registration statement contemplated by Section 4.18 of this Agreement and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.7Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

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4.8Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

4.9Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.

4.10Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

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4.11Reservation and Listing of Securities.

(a)Following the Authorized Share Approval, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents at least equal to the Required Minimum as of such date.

(b)If, on any date after the date of the Authorized Share Approval, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

(c)The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing and (iv) maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

(d)In addition, the Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date following the date hereof, and in any event within 75 calendar days following the Closing Date, for the purpose of obtaining the Authorized Share Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. In addition, the Company agrees to use its best efforts to promptly respond to any comments the Commission may have with respect to any preliminary proxy statement. If the Company does not obtain the Authorized Share Approval at the first meeting, the Company shall call a meeting every 30 days thereafter to seek Authorized Share Approval until the earlier of the date the Authorized Share Approval is obtained or the Debentures and Warrants are no longer outstanding.

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4.12Participation in Future Financing.

(a)Other than the Senior Debt, from the date hereof until the date that the Debentures are no longer outstanding, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a combination of units hereof) (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

(b)At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

(c)Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5^th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

(d)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Participation Maximum, Company may effect the remaining portion of the Participation Maximum of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

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(e)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

(f)The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 Trading Days after the date of the initial Subsequent Financing Notice.

(g)Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

4.13Subsequent Equity Sales.

(a)From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, a Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

(b)From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

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(c)Unless and until the Authorized Share Approval is obtained, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents. So long as the Debentures or Warrants are outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $0.24 (subject to adjustment for forward and reverse stock splits, stock dividends and combinations and similar transactions affecting the Common Stock after the Closing Date). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(d)Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

4.14Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.15Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will execute any Short Sales during the period commencing with the Discussion Time and ending at such time the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6; provided, however, each Purchaser agrees, severally and not jointly with any other Purchasers, that they will not enter into any Net Short Sales (as hereinafter defined) from the period commencing on the Closing Date and ending on the date that is the earlier of (x) the 6-month anniversary of the Closing Date or (y) the date that such Purchaser no longer holds any Debentures.  For purposes of this Section 4.15, a “Net Short Sale” by any Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by such Purchaser.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by the Purchaser, Underlying Shares that have not yet been converted pursuant to the Debentures and Warrant Shares that have not yet been exercised pursuant to the Warrants shall be deemed to be held long by the Purchaser, and the amount of shares of Common Stock held in a long position shall be all unconvertedUnderlying Sharesand unexercised Warrant Shares (ignoring any exercise limitations included therein) issuable to such Purchaser on such date, plus any shares of Common Stock or other Common Stock Equivalents (other than the unconverted Underlying Shares and unexercised Warrant Shares described in this sentence) otherwise then held by such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

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4.16Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

4.17Capital Changes. Until the one year anniversary of the Effective Date, other than in connection with a Permitted Reverse Stock Split (as defined below), the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of the Common Stock that is approved on or before April 15, 2009 for purposes of satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and is effective contemporaneous with, or immediately prior to, the approval of the Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

4.18Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then, subject to SEC Guidance (as defined in the March Registration Rights Agreement) the Company shall send a written notice of such determination to each Purchaser and, if within

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ten calendar days after the date of delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such Registration Statement all or any part of the Underlying Shares as the Purchaser requests to be registered so long as such Underlying Shares are proposed to be disposed of in the same manner as those securities set forth in the Registration Statement, subject to pro rata cutback of the Purchasers (based upon the respective amounts of their Underlying Shares that are proposed for registration) and all other security holders proposed to be included in such Registration Statement, to the extent that all of the shares proposed for registration shall not be permitted due to SEC Guidance with respect to Rule 415. The Company shall use its best efforts to cause any Registration Statement to be declared effective by the Commission as promptly as is possible following it being filed with the Commission and to remain effective until all Underlying Shares subject thereto have been sold. All fees and expenses incident to the performance of or compliance with this Section 4.18 by the Company shall be borne by the Company whether or not any Underlying Shares are sold pursuant to the Registration Statement. The Company shall indemnify and hold harmless the Purchasers, the officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them, each person who controls the Purchasers (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the officers, directors, members, shareholders, partners, agents and employees of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any prospectus included therein or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 4.18, except to the extent, but only to the extent, that such untrue statements or omissions referred to in (i) above are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser’s proposed method of distribution of Underlying Shares and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto. The rights of the Purchasers under this Section 4.18 shall survive until all Underlying Shares have been either registered under a Registration Statement or been sold pursuant to an exemption to the registration requirements of the Securities Act.

4.19Removal of Subordination Legend. Following the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), within 3 Business Days of a written request from any Purchaser, the Company hereby agrees to issue such Purchaser a replacement Debenture, without the restrictive legend referencing the Archer Intercreditor Agreement, and otherwise in the same form of such Purchaser’s Debenture.

4.20Certain Permitted Payments under the Archer Intercreditor Agreement. In connection with “Permitted Payments” (as defined in the Archer Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder,no less than ten (10) days prior to the due date of such Quarterly Redemption Amounts (as defined in the Debentures) as described in such Section, the Company agrees to deliver each Purchaser a written certification of compliance with the financial covenants under the Archer Loan Agreement for the month prior to the date such Quarterly Redemption Amount is due, and, if requested in writing by a Purchaser and subject to Section 4.8 hereunder, calculations in reasonable detail evidencing compliance with such financial covenants.

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4.21Other Agreement(s). From the date hereof until the two year anniversary of the Closing Date, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents to Patrick Shutt, George King or Robert Pollan, or any of their respective Affiliates. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 21, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse Midsummer Capital, LLC (“Midsummer”) the non-accountable sum of $75,000 for its legal fees and expenses, $25,000 of which has been paid prior to the Closing. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

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5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

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5.10Survival. The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice.

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5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

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5.18Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FWS. FWS does not represent all of the Purchasers but only Midsummer. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

5.19Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.21Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

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5.22WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

CAPITAL GROWTH SYSTEMS, INC.	Address for Notice: Attention Chief Executive Officer 500 W. Madison St., Suite 2060 Chicago, Illinois 60661 Facsimile: 312-673-2422
By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice):
Shefsky & Froelich Ltd. 111 E. Wacker Dr., Suite 2800 Chicago, Illinois 60601 Facsimile: 312-275-7569

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO CGSY SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Principal Amount (Subscription Amount multiplied by 1.65): _____________

Warrant Shares: _________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

EX-10.12 13 v132473_ex10-12.htm

Exhibit 10.12

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENTS (AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November ___, 2008

Original Conversion Price (subject to adjustment herein): $0.24

$_______________

ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on the seven year anniversary of the Original Issue Date (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

2

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

3

“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued and unpaid default interest.

4

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture issued to the Administrator, and (f) Magenta employee notes in the amount of approximately $87,000.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

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“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

“Quarterly Redemption Notice” shall have the meaning set forth in Section 6(a) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

¹ A*B-A/23, where A = the initial Subscription Amount and B = 1.65.

¹ A*B-A

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Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Authorized Share Approval until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)[Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.] [SECTION 4(c) TO BE REPLACED BY “[RESERVED]” WITH RESPECT TO AEQUITAS AND DAVID L.]]

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

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ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. After the Authorized Share Approval, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”).

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The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and, if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the March Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the March Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

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Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exists or occurs;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

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Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

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b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November___, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title
Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due November ___, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:  

Account No:  

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on November ___, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.13 14 v132473_ex10-13.htm

Exhibit 10.13

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Authorized Share Approvaldate (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the date the Authorized Share Approval is received and effective (the “Termination Date”) but not thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a Florida corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the date the Authorized Share Approval has been received and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

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b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise. If at any time after the earlier of (i) the six month anniversary of the date of the Purchase Agreement and (ii) the completion of the then-applicable holding period required by Rule 144, or any successor provision then in effect, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant until the Authorized Share Approval Date.The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. [This Section 2(d) to be replaced in Aequitas Warrant with “[RESERVED]”]

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e)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the seventh Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

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c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

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Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants that after the Authorized Share Approval is received, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders holding Warrants at least equal to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

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16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

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(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

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(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

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2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

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(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

S1-7

(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

S1-10

ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

2

3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

3

4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

*************************

4

[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

5

EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

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(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

A-8

(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

A-9

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

A-10

EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

A-A-1

EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

A-B-1

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.6

Exhibit 10.6

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: March 11, 2008

$_______________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED

CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due November ___, 2009 (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Purchasers” , and such agreement,the “Archer Loan Agreement”).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

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“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

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“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

“Event of Default” shall have the meaning set forth in Section 8(a).

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“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued but unpaid default interest.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture (as defined in the November Purchase Agreement) issued to the Administrator (as defined in the November Purchase Agreement), and (f) Magenta employee notes in the amount of approximately $87,000.

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“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

______________________________

¹ A-B/21, where A = the new face amount of this Debenture and B = the initial Subscription Amount

² A-B

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“Quarterly Redemption Notice” shall have the meaning set forth in Section [6(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

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d)   Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

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iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment for liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved _________³ shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

Section 5.Certain Adjustments.

_________________________

³ Original Subscription Amount under March Purchase Agreement divided by $0.50.

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a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

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h)Other Adjustments. On the 210^th calendar day following the Original Issue Date (the “Trigger Date”), the Conversion Price shall be reduced to equal the lesser of (i) the then Conversion Price and (ii) a price equal to 90% of the average of each of the VWAPs for the 5 Trading Days immediately prior to the Trigger Date. For clarity, the Conversion Price can only be adjusted downward pursuant to this Section 5(h).

Section 6.Quarterly Redemption.

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a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the November Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the November Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

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a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; and (iii) redemptions as permitted under the November Debentures or the Debentures;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures or November Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default (or with respect to the November Debentures with respect to any event of default thereunder) exist or occur;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

Section 8.Events of Default.

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a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or

Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:_____________

Account No:___________

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.7 8 v132473_ex10-7.htm

Exhibit 10.7

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: March 11, 2008

$__________________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE AMENDING AND RESTATING THE DEBENTURE ORIGINALLY ISSUED 3/11/08 is one of a series of duly authorized and validly issued Amended and Restated Original Issue Discount Secured Convertible Debentures Amending and Restating Debenture Originally Issued 3/11/08 of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Amended and Restated Original Issue Discount Secured Convertible Debenture Amending And Restating Debenture Originally Issued 3/11/08, due on the day immediately preceding the first anniversary of this Debenture, as that term is defined herein (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will terminate on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture.

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FOR VALUE RECEIVED, the Company promises to pay to _____________, or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $__________,on the later to occur of the Termination Date or the Extended Termination Date, as applicable, (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder and to pay default interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the senior lenders under the Archer Loan Agreement (the “Archer Purchasers”).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

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“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

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“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds 300,000 shares per Trading Day (subject to forward and reverse stock splits, stock dividends, stock combinations, recapitalizations and other similar transactions of the Common Stock that occur after the Original Issue Date).

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“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including without limitation, any accrued and unpaid default interest.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture (as defined in the November Purchase Agreement) issued to the Administrator (as defined in the November Purchase Agreement), and (f) Magenta employee notes in the amount of approximately $87,000.

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“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $____________ plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $_________.

“Quarterly Redemption Date” means January 1, April 1, July 1 and October, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

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“Quarterly Redemption Notice” shall have the meaning set forth in Section [6(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid default interest thereon, if any, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the six month anniversary of the Original Issue Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(d) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment for liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved 3,049,358 shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

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a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock duringsuch 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption, provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date). The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quarterly Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; and (iii) redemptions as permitted under the November Debentures or the Debentures;

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e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures or November Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default (or with respect to the November Debentures with respect to any event of default thereunder) exist or occur;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest payment or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

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iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, provided however that the failure of Vanco Direct USA, LLC (“VDUL”) to obtain consent to either the change in control of VDUL by the Company or of any sublease of any of its space from VDUL’s sublessor, or the sublessor or lessor senior to its sublessor or lessor senior to it sublessor with respect to space in ins lease of 200 West Wacker, Chicago, Illinois, shall not be deeded to constitute a breach of the Purchase Agreement;

vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

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x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4, or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Subject to the Archer Intercreditor Agreement, accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

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b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

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e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

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h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of Shares of Common Stock to be Issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of

Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                       

Account No:                   

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.8 9 v132473_ex10-8.htm

Exhibit 10.8

TERM LOAN AND SECURITY AGREEMENT

Dated as of November ____, 2008

Among

CAPITAL GROWTH SYSTEMS, INC.,

GLOBAL CAPACITY GROUP, INC.,

CENTREPATH, INC.,

20/20 TECHNOLOGIES, INC.,

20/20 TECHNOLOGIES I, LLC,

NEXVU TECHNOLOGIES, LLC,

FNS 2007, INC.,

MAGENTA NETLOGIC LIMITED,

CAPITAL GROWTH ACQUISITION, INC., and

VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC

(as Borrowers),

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

(as Lenders),

and

ACF CGS, L.L.C.

(as Agent)

TABLE OF CONTENTS

		Page
1.	Definitions	2
2.	Borrowing	14
3.	Interest and Fees	20
4.	Representations and Warranties of Borrowers	21
5.	Collateral	25
6.	Financial Covenants	26
7.	Collateral Covenants	26
8.	Negative Covenants	30
9.	Reporting and Information	32
10.	Inspection Rights; Expenses; Etc.	33
11.	Rights of Setoff, Application of Payments, Etc.	34
12.	Attorney-in-Fact	34
13.	Defaults and Remedies	35
14.	Indemnification	38
14.	Indemnification	43
15.	General Provisions	44

Attachments:

Addendum

Exhibit A - Lender and Lenders’ Commitment

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Term Note

Exhibit D - Employment Agreements

TERM LOAN AND SECURITY AGREEMENT

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the ___ day of September, 2008 among CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a Global Capacity Direct, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein individually as a “Borrower” and collectively as the “Borrowers”), the lenders from time to time party hereto (each a “Lender” and collectively, the “Lenders”) and ACF CGS, L.L.C., a Delaware limited liability company, as agent for the Lenders (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a secured term loan and Lenders are willing to provide a secured term loan to Borrowers on the terms set forth herein, which secured term loan Borrowers will use for the purposes permitted hereunder; and

WHEREAS, Borrowers’ business is a mutual and collective enterprise and Borrowers believe that the consolidation of the secured term loan and other financial accommodations under this Agreement will enhance the aggregate borrowing powers of Borrowers and facilitate the administration of their loan relationship with Agent and each of the Lenders, all to the mutual advantage of Borrowers; and

WHEREAS, each Borrower acknowledges that it will receive substantial direct and indirect benefits by reason of the making of the secured term loan and other financial accommodations to Borrowers as provided in this Agreement, by virtue of Borrowers’ various inter-relationships as joint guarantors or joint obligors and the beneficiaries thereof, as lessors and lessees, as suppliers and customers, and as joint venturers; and

WHEREAS, Lender’s willingness to extend financial accommodations to Borrowers, and to administer Borrowers’ collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers’ request and in furtherance of Borrowers’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions. For purposes of this Agreement:

“20/20 Inc. Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 Inc. in favor of the Agent, on behalf if itself and the Lenders, with respect to its Stock in 20/20 LLC.

“20/20 LLC Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 LLC in favor of the Agent, on behalf of itself and the Lenders, with respect to its Stock in Magenta.

“Accounts” means all presently existing or hereafter arising accounts receivable due each Borrower (including medical and health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to each Borrower, whether or not arising from the sale or lease of goods or the rendition of services by such Borrower (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of each Borrower’s rights in, to and under all purchase orders now or hereafter received by such Borrower for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to each Borrower under all contracts for the sale or lease of goods or the rendition of services by such Borrower (whether or not yet earned) (including the right to receive the proceeds of said purchase orders and contracts), all amounts payable to each Borrower under any insurance policy, all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by each Borrower that correspond to any of the foregoing.

“Account Control Agreements” shall mean collectively, the Private Bank Account Control Agreement and the HSBC Account Control Agreement.

“Acquisition” means the acquisition by CG Acquisition of 100% of the membership interests of Vanco pursuant to the Acquisition Documents.

“Acquisition Documents” means the Interest Purchase Agreement and the Management Services Agreement, together with all other agreements, instruments, opinions of counsel and other documents executed and/or delivered in connection with the Acquisition.

“Addendum” means the Addendum to Term Loan and Security Agreement attached hereto, as the same may be amended and in effect from time to time.

“Adjusted Working Capital” means the remainder of (a) the consolidated current assets of the Borrowers minus the amount of cash and cash equivalents included in such consolidated current assets, minus (b) the consolidated current liabilities of the Borrowers minus the amount of consolidated short-term Indebtedness (including current maturities of long-term Indebtedness) of the Borrowers included in such consolidated current liabilities.

2

“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agent” has the meaning set forth in the preamble hereto.

“Agent Advances” has the meaning specified therefor in Section 14(h).

“Agreement Date” means the date as of which this Agreement is dated.

“Annualized EBITDA” shall mean the trailing period EBITDA annualized to twelve (12) months.

“Applicable Authorization States” means the states of Arizona, Delaware, Georgia, Indiana, Pennsylvania, Tennessee and West Virginia.

“Applicable Margin” means the rate of interest to be paid on the unpaid principal amount of the Term Note from and after the Agreement Date. For the period from and after the Agreement Date, the Applicable Margin shall be 14% per annum payable monthly, of which 9% shall be paid in cash, and 5% shall be capitalized, compounded and added to the unpaid principal amount of the Term Note monthly (whereupon from and after such date such additional amounts shall also accrue interest) (such interest, “PIK Interest”).

“Applicable Rate” means a rate equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in form approved by the Agent.

“Borrowers’ Agent” means Parent, in its capacity as agent for itself and the other Borrowers pursuant to Section 2(j).

“Borrower Asset Sales” has the meaning set forth in Section 2(c)(i).

“BT Receivable” means those certain receivables related to Magenta invoices OPT-20080807-1 and OPT-20080331-2 as defined in the BT Receivables Agreement.

“BT Receivables Agreement” means that certain Second Amendment to British Telecommunications and Magenta netLogic Ltd. Camera Agreement 10693 dated September 30, 2008.

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“BT Receivable Payment” means any cash received by a Borrower with respect to the BT Receivable.

“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent is otherwise closed for transacting business with the public.

“Capitalized Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligations” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Balance” means, at any time, unrestricted cash and cash equivalents of Borrowers, on deposit with (i) the Depository Bank and subject to the Private Bank Account Control Agreement, and (ii) HSBC USA, National Association and subject to the HSBC Account Control Agreement.

“CG Acquisition Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by CG Acquisition in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Vanco.

“Collateral” has the meaning set forth in Section 5(a).

“Commitment” means with respect to each Lender, the commitment of such Lender to make the Term Loan to the Borrowers in the amount set forth in Exhibit A hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement.

“Credit Party” means each Borrower, any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, or any other Person which has granted a Lien on any assets of such Person as collateral for any of the Obligations, and “Credit Parties” means all of the foregoing Persons collectively.

“Customer” means any customer of any Borrower.

“Debenture Documents” means the Debenture Purchase Agreements and all debentures, security agreements, guarantees and other agreements executed and/or delivered in connection with the Debenture Indebtedness.

“Debenture Indebtedness” means Indebtedness of Parent (which is guaranteed by certain other Borrowers) evidenced by the debentures issued pursuant to the Debenture Purchase Agreements, as described in Item 9 of the Addendum.

“Debenture Intercreditor Agreement” means that certain Debt Subordination and Intercreditor Agreement dated on or about the Agreement Date among Agent, for the benefit of the Agent and the Lenders, and the Debenture Purchasers.

4

“Debenture Purchasers” means the Purchasers under and as defined in the Debenture Purchase Agreements and any successor holders of Debenture Indebtedness permitted under the Debenture Intercreditor Agreement.

“Debenture Purchase Agreements” mean each of: (a) that certain Securities Purchase Agreement dated as of March 11, 2008, among Parent and the Debenture Purchasers party thereto, as modified and amended pursuant to that certain Consent, Waiver, Amendment and Exchange Agreement dated on or about the Agreement Date, pursuant to which Parent agrees to issue debentures to such Debenture Purchasers to cover the outstanding interest payable for the remainder of the terms of their original debentures and to cover the remaining penalties associated with failure to meet the maximum negotiated obligations pursuant to the Registration Rights Agreement between Parent and such Debenture Purchasers; (b) that certain Note Purchase Agreement dated as of September 25, 2008, between Parent and Aequitas Catalyst Fund, LLC –Series B; (c) that certain Securities Purchase Agreement dated on or about the Agreement Date among Parent and the Debenture Purchasers party thereto; and (d) the Interest Purchase Agreement to the extent the same provides, for the issuance of a debenture to the Administrator in the original principal amount of $4,000,000.

“Depository Bank” shall mean The Private Bank and Trust Company, its successors and assigns, in its capacity as the provider of cash management services to the Borrowers.

“Default” has the meaning set forth in Section 13(a).

“EBITDA” means for Borrowers on a consolidated basis, net income (excluding non-recurring gains and extraordinary gains) before provision for interest expense, taxes, depreciation, amortization, and financing and transaction fees relating to the initial closing of this Agreement and the Acquisition ,determined in accordance with GAAP, and excluding, in any event, any non-cash impact on income or loss from application of variable accounting rules or requirements, and any expenses associated with original issue discounts and Stock based compensation.

“Employment Agreements” means, collectively, the Employment Agreements between Parent and each of (i) Patrick C. Shutt, (ii) George A. King, (iii) Robert A. Pollan, (iv) Jim McDevitt, and (v) Chris Conant, each as attached hereto as Exhibit D.

“Equipment” means all of each Borrower’s machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.

“Excess Cash Flow” means, with respect to any fiscal period for the Borrowers on a consolidated basis determined in accordance with GAAP, (a) EBITDA, plus (b) any net decrease (or minus any net increase) in Adjusted Working Capital during such period, minus (c) the sum of (i) the cash portion of interest actually paid during such period, (ii) the cash portion of income taxes paid during such period, (iii) all principal payments made in cash with respect of the Term Loan (if any), and (iv) the cash portion of capital expenditures made during such period and in accordance with Item 21 of the Addendum.

5

“Excluded Equipment” means the Equipment owned by any Borrower or Vanco, as the case may be, and used in connection with the delivery of telecommunications services as part of the respective business operations of any Borrower or Vanco within the Applicable Authorization States.

“Extraordinary Receipts” means any cash received by a Borrower with respect to (a) federal and state tax refunds (but only to the extent such state tax refunds exceed $25,000, in the aggregate in any fiscal year), (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance and, unless Agent provides its prior written consent otherwise, business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, including without limitation, awards or settlements in respect of condemnation and eminent domain proceedings, (e) indemnity payments, (f) any purchase price adjustment received in connection with any purchase agreement (other than relating to ordinary purchases of goods and services in the ordinary course of business), excluding in all events, any future proceeds from the previous asset sale transactions involving Nexvu or FNS, and (g) at any time that a Default shall exist and at the sole discretion of Agent, any other cash received by a Borrower not in the ordinary course of business.

“FCC” means the U.S. Federal Communications Commission.

“Final Closing” means the release from escrow of the Purchased Membership Interests pursuant to the Acquisition Documents.

“Funding Date” means a date (i) no later than one (1) Business Day following the delivery of notification to the Agent, in form and substance satisfactory to Agent in its sole discretion, that the STA Requests (as such term is defined in the Interest Purchase Agreement) have been approved and (ii) on which satisfaction of the applicable conditions set forth in Item 2 of the Addendum have occurred.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination and applied on a consistent basis.

“General Intangibles” means all of each Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of each Borrower (including payment intangibles, all rights under insurance policies and any and all choses or things in action, goodwill, patents and patent applications, trade names, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as each Borrower’s books and records relating to any of the foregoing.

6

“Goods” means all of each Borrower’s present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software to the extent included in “goods” as defined in the UCC, manufactured homes, and standing timber that is to be cut and removed for sale.

“Governing Documents” shall mean, with respect to any Person, its certificate or articles of incorporation, certificate of formation, or, as the case may be, certificate of limited partnership, its by-laws, operating agreement or, as the case may be, partnership agreement or other constitutive documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state, local or foreign national or provincial and all agencies thereof, including, without limitation, any domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions.

“HSBC Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and HSBC USA, National Association.

“Indebtedness” shall mean the aggregate amount of, without duplication, (a) all obligations of each Borrower for borrowed money, (b) all obligations of each Borrower evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of each Borrower to pay the deferred purchase price of property or services (excluding trade payables that are aged less than ninety (90) days), (d) all Capitalized Lease Obligations of each Borrower, (e) all obligations or liabilities of any other Person secured by a Lien on any asset of any Borrower, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by any Borrower; and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of any Borrower.

“Intellectual Property” means any and all licenses, patents, copyrights, trademarks, designs and the goodwill associated with such trademarks.

“Interest Expense” means, for any period, the aggregate of the interest expense of the Borrowers for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Purchase Agreement” means that certain Interest and Loan Purchase Agreement dated as of November 14, 2008 among CG Acquisition, Seller, and the Administrators party thereto.

“Inventory” means all of each Borrower’s inventory as defined in the UCC, together with all of each Borrower’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of each Borrower’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

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“Investment” shall mean the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, any Person.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments, certificates and other documents executed and/or delivered in connection with this Agreement, including collateral documents, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments, subordination agreements, intercreditor agreements, warrants and registration rights agreements (it being understood, however, that any termination of this Agreement shall not terminate or otherwise limit Agent’s or any Lender’s rights under any such warrant, registration rights agreement or other related document unless Agent expressly so agrees in writing) and all other agreements executed or delivered by any Borrower or any other Credit Party or any Affiliate of any Borrower or any other Credit Party pursuant hereto or in connection herewith.

“Magenta Account” has the meaning set forth in Section 7(k)(ii).

“Magenta Three-Party Account Agreement” shall mean the Three-Party Account Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, Magenta and HSBC Bank, plc.

“Management Services Agreement” means that certain Management Services Agreement dated as of November 14, 2008, among CG Acquisition, Seller, and the Administrators party thereto.

“Material Adverse Effect” shall mean any state of facts, events, changes or effects that is materially adverse to or materially impairs: (a) the business, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Borrowers taken as a whole; (b) the ability of Borrowers to perform the Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or any of the Lenders to enforce any of its rights or remedies with respect to the Obligations or under the Loan Documents; or (c) the Collateral (including the value and condition thereof) or Agent’s or any Lender’s Liens on the Collateral or the priority of such Liens.

“Material Contract” means, with respect to any Person, (i) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person or such Subsidiary of $250,000 or more, (ii) the Acquisition Documents and (iii) all other contracts or agreements material to the business, operations, condition (financial or otherwise), performance, prospects or properties of such Person or such Subsidiary.

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“Monthly Recurring Circuit Revenue” means the aggregate monthly invoice amount for all monthly billings issued by any of the Borrowers with respect to their circuit business. The monthly recurring circuit revenue will equal the total monthly billing amount determined as of the date the Borrowers issue their monthly invoices (usually the 1^st day of the month).

“Negotiable Collateral” means all of each Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and each Borrower’s books and records relating to any of the foregoing.

“Net Cash Proceeds” means:

(a)with respect to any sale or disposition by a Borrower of property or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under this Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by a Borrower in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction;

(b)with respect to the issuance or incurrence of any Indebtedness by a Borrower, or the issuance by a Borrower of any shares of its Stock (excluding sales of Stock in the Parent pursuant to warrants or options in existence as of the date hereof), the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of a Borrower in connection with such issuance or incurrence, after deducting therefrom only (i) all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such issuance or incurrence, and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction; and

(c)with respect to any Extraordinary Receipts received by a Borrower, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such Extraordinary Receipts, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such Extraordinary Receipts.

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“New Lending Office” has the meaning set forth in Section 2(o).

“Nexvu Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by Nexvu in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Nexvu Manager, Inc. and Nexvu APM, LLC.

“Obligations” means all indebtedness, obligations and liabilities of each Credit Party to Agent, any of the Lenders, and any of their Affiliates, individually or collectively, under the Loan Documents, whether now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise, or whether evidenced by any instrument, agreement or book account, including, but not limited to, the Term Loan (including any modification, renewal or extension), and all interest, taxes, fees, charges, expenses, indemnity obligations and attorney’s fees (whether or not such attorney is a regularly salaried employee of Agent or any of the Lenders or any of their Affiliates) chargeable to any Credit Party or incurred by Agent or any of the Lenders under this Agreement or any other Loan Document.

“Parent Stock Pledge Agreement” means that certain Pledge Agreement of even date herewith granted by Parent in favor of Agent, on behalf if itself and the Lenders, with respect to its Stock in CentrePath, GCG, 20/20 Inc., FNS, Nexvu and CG Acquisition.

“Participant Register” has the meaning specified therefor in Section 16(f)(vii).

“Permitted Dispositions” means (a) sales or other dispositions of Inventory and Equipment that is substantially worn, damaged, or obsolete or no longer used or usable in the business of the Borrowers, in each case, in the ordinary course of business and for fair consideration and on terms no less favorable to the Borrowers than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and (b) sales of Inventory to buyers in the ordinary course of business.

“Permitted Indebtedness” shall mean and include: (a) the Obligations; (b) Indebtedness arising from the endorsement of instruments in the ordinary course of business of a Borrower; (c) Subordinated Debt; (d) Indebtedness existing as of the date hereof to the extent listed on Item 9 of the Addendum; (e) Indebtedness in connection with purchase money security interests constituting Permitted Liens and Capitalized Leases not to exceed, in aggregated principal amount for all Borrowers on a consolidated basis, the amount set forth on Item 20 of the Addendum at any one time outstanding; (f) Indebtedness consisting of reimbursement obligations under surety, indemnity, performance, release and appeal bonds and guarantees thereof and letters of credit issued to landlords in the ordinary course of business of a Borrower; and (g) extensions, refinancings, refundings, renewals, modifications, amendments and restatements of any Permitted Indebtedness that do not increase the principal amount or interest rate per annum thereof, shorten the maturity thereof or accelerate the principal payments thereof.

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“Permitted Investments” shall mean and include: (a) deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent such deposits are fully insured by the Federal Deposit Insurance Corporation in which Agent has a perfected, first-priority security interest, and up £75,000 at any time in the Magenta Account, as disclosed to Agent on Item 14 of the Addendum, in the United Kingdom without such a security interest and provided such account shall be maintained at all times in accordance with the terms of Section 7(k)(ii) of this Agreement; (b) Investments in money market accounts maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (c) Investments in certificates of deposit maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (d) Investments in marketable obligations issued or fully guaranteed by the United States, or any agency thereof, and maturing not more than one (1) year from the date of acquisition; (e) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (f) Investments existing on the date hereof to the extent listed on Item 7 of the Addendum; (g) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business of a Borrower, but only to the extent the same are entered into to hedge risk and not for speculation; (h) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business of the Borrowers; and (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business the Borrowers.

“Permitted Liens” means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment, stay of execution or injunction; (iv) the performance of bids, tenders or contracts (other than for the repayment of borrowed money); (v) indemnity, performance or other bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money); and (vi) obligations to landlords in the ordinary course of business of the Borrowers; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such property or materially detract from the value of such property; (d) Liens existing on the Agreement Date and described on Item 1 of the Addendum; (e) Liens on Equipment securing all or part of the purchase price of such Equipment; provided, however, that (i) such Lien is created contemporaneously with the acquisition of such Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the Indebtedness incurred to acquire such Equipment; (f) so long as the Debenture Intercreditor Agreement is in full force and effect, Liens on all or substantially all assets of Borrowers in favor of the Debenture Purchasers to secure the Debenture Indebtedness, including the indebtedness described in Item 9 of the Addendum; (g) Liens arising from judgments, decrees or attachments that do not constitute a Default under this Agreement; and (h) Liens in favor of Agent or any of the Lenders securing any of the Obligations.

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“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“PIK Interest” has the meaning set forth in the definition of “Applicable Margin”.

“Prime Rate” means, at any time, the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s thirty (30) largest banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three (3) largest U.S. money center commercial banks, as determined by Agent. Notwithstanding the foregoing, for purposes of this Agreement, at no time shall the Prime Rate be less than five percent (5.0%) per annum. The Prime Rate may not be the lowest or best rate at which Agent calculates interest or the Lenders extend credit. Any change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change.

“Private Bank Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and the Depository Bank.

“Pro Rata Share” means the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the Total Commitment.

“Purchased Membership Interests” means the membership interests of Vanco to be purchased by CG Acquisition pursuant to the Acquisition Documents.

“Recurring Circuit Margin” means for a particular measurement period (i) the difference between the Monthly Recurring Circuit Revenue for the months comprising such measurement period and (ii) the direct cost to Borrowers of any circuits included within Monthly Recurring Circuit Revenue for the months included within such measurement period, but excluding any costs which are non-recurring.

“Register” has the meaning set forth in Section 16(f)(iv).

“Registered Loan” has the meaning set forth in Section 16(f)(iv).

“Required Lenders” means Lenders whose Pro Rata Shares aggregate at least 50.1%.

“Related Fund” means, with respect to any Person, an Affiliate of such Person, or a fund or account managed by such Person or an Affiliate of such Person.

“Seller” means Vanco plc (in administration), a United Kingdom corporation.

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“Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act) or equivalent securities issued by Magenta or any other foreign subsidiary.

“Strategic Sourcing Business Unit” means the segment of the Borrowers’ business that provides network services for clients, including design, installation, provisioning, management and monitoring of circuits.

“Subordinated Debt” means (a) so long as the Debenture Intercreditor Agreement remains in full force and effect, the Debenture Indebtedness, and (b) all of the Indebtedness owed by any Borrower to any other Person, the repayment of which is subordinated to the repayment of the Obligations pursuant to the terms of a subordination agreement approved by Agent and the Required Lenders in writing in their sole discretion.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or managing member or may exercise the powers of a general partner whether directly or indirectly, and (c) any other Person (other than a corporation, limited liability company or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Term Loan” has the meaning set forth in Section 2(a).

“Term Note” has the meaning set forth in Section 2(b).

“Total Commitment” means the sum of the amounts of the Lenders' Commitments.

“Transferee” has the meaning set forth in Section 2(o).

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, however, that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

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Other Definitional Provisions. References to the “Addendum” or any “Section” or “Exhibit” refer to the Addendum or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement: words importing any gender include the other genders; the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; all references to time of day shall refer to New York, New York time; and all references to financial calculations or statements on a “consolidated” basis mean calculations or statements that reflect information and results with respect to Borrowers and no other Person. Unless otherwise specifically indicated, all monetary amounts and references herein refer to United States dollars, and all amounts to be loaned and paid hereunder shall be in United States dollars. In the event that Agent receives any payment in any currency other than United States dollars, Agent shall determine the conversion rate with respect to such amount in its reasonable discretion for purposes of determining the amount of the Obligations that have been satisfied.

2.Borrowing and Terms of Payment.

(a)The Term Loan. Subject to the terms and conditions set forth in this Agreement, each Lender, simultaneously and proportionately to their Pro Rata Shares of the Total Commitment, agrees to make a term loan in favor of the Borrowers to be funded on the Funding Date (the “Term Loan”). Any portion of the Total Commitment not funded on the Funding Date, shall not be available to the Borrowers without the Agent’s express written consent. Subject to satisfaction of the applicable conditions set forth in Item 2 of the Addendum,on the Funding Dateeach Lender shall disburse the proceeds of the Term Loan to the Borrowers or as the Borrowers’ Agent shall request in writing. Amounts repaid in respect of the Term Loan may not be reborrowed.

(b)The Term Note. The Term Loan shall be evidenced by separate promissory notes of the Borrowers in the form of Exhibit C attached hereto payable to each Lender (the “Term Note”) in the original principal amount of such Lender’s Commitment, dated as of the Agreement Date (or such other date on which a Lender may become a party hereto in accordance with Section 16(f) hereof)and completed with appropriate insertions.

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(c)Mandatory Prepayments.

(i)Immediately upon the receipt by any Borrower of the proceeds of any voluntary or involuntary sale or disposition by any Credit Party of property or assets (including casualty losses or condemnations but excluding sales or dispositions which qualify as Permitted Dispositions) (“Borrower Asset Sales”), Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such Borrower Asset Sale; provided that, solely in respect of any Borrower Asset Sales, so long as (A) no Default shall have occurred and is continuing, (B) Borrower’s Agent shall have given Agent prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the monies are held in a cash collateral account in which Agent, for the benefit of the Agent and the Lenders has a perfected first priority security interest, and (D) Borrowers complete such replacement, purchase, or construction within 90 days after the initial receipt of such monies, Borrowers shall have the option to apply such monies to the costs of replacement of the property or assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent for application against the Obligations. Nothing contained in this Section 2(c)(i) shall permit any Borrower to sell or otherwise dispose of any property or assets other than in accordance with the terms and conditions of this Agreement.

(ii)Immediately upon the receipt by any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Extraordinary Receipts.

(iii)Immediately upon the issuance or incurrence by any Borrower of any Indebtedness (other than Indebtedness permitted hereunder) or the issuance by any Borrower of any shares of such Borrower’s Stock (excluding sales of Stock of the Parent pursuant to warrants or options in existence as of the date hereof) Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such issuance or incurrence. The provisions of this Section 2(c)(iii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(iv)No later than two (2) Business Days following the receipt by any Borrower of any BT Receivable Payment, Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to sixty-six percent (66%) of the BT Receivable Payment received by such Person. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

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(v)Within ten (10) days following delivery to Agent and the Lenders of Borrowers’ monthly financial statements pursuant to Section 9(a) for the month ended December 31, 2009 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 9(a), ten (10) days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 9(a), Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to 50% of the Excess Cash Flow of the Borrowers for fiscal year 2009. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have overpaid the Excess Cash Flow payment referred to herein, then the Agent shall credit such overpayment to any interest then due and payable, if any, or the Borrowers’ next scheduled payment of interest if no interest is then due and payable. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have underpaid the Excess Cash Flow payment referred to herein, then the amount of such underpayment shall be immediately due and payable in cash to the Agent for application to any outstanding Obligations. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

(d)Voluntary Prepayments. Borrowers may prepay the principal balance of the Term Loan in whole or in part at any time upon at least 30 days’ prior written notice from Borrowers’ Agent to Agent (which notice, once given shall be irrevocable). Any such prepayment of principal shall be accompanied by accrued interest on the amount so prepaid and any fees pursuant to Section 3(c) due and payable on the amount so prepaid. Any portion of the Term Loan prepaid hereunder may not be reborrowed.

(e)Conditions to Obligation to Making of the Term Loan. Borrowers acknowledge that Lenders’ obligation to make the Term Loan to Borrowers is subject to the following terms and conditions:

(i)Agent has no obligation to make the Term Loan to Borrowers or to extend any other financial accommodation to any Borrower unless and until (A) Borrowers deliver to Agent, in form and substance satisfactory to Agent in its discretion, each agreement, instrument, legal opinion and other document specified on Item 2 of the Addendum,and (B) each other condition precedent specified on Item 2 of the Addendumhas been satisfied in a manner satisfactory to Agent in Agent’s sole discretion. Once the conditions described in this Section 2(e) have been satisfied in Agent’s sole and absolute discretion, Agent shall provide Lender with a letter confirming same.

(ii)Lenders’ obligation to make the Term Loan to Borrowers and extend other financial accommodations to Borrowers is subject to the conditions that, as of the Agreement Date, (A) no Default will have occurred and be continuing hereunder, (B) there will have occurred no event or circumstance which has had or which could reasonably be expected to have a Material Adverse Effect, (C) Borrowers’ representations and warranties set forth in this Agreement and the other Loan Documents will be true and correct and (D) the Borrowers’ application for Special Temporary Authority has been approved by the applicable governmental authorities, as defined and described in the Interest Purchase Agreement.

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(f)Repayment of Term Loan. The entire outstanding principal balance of the Term Loan, together with all accrued and unpaid interest and all other outstanding Obligations, shall be due and payable on the Termination Date as provided for in Item 3 of the Addendum, unless sooner due as a result of acceleration or demand hereunder. Borrowers shall make each payment required hereunder or under any other Loan Document without setoff, deduction or counterclaim. All payments by Borrowers shall be made to Agent’s for the account of the Lenders or as otherwise directed by the Agent in writing from time to time and shall be made in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. Any payment received by Agent (or such Person to whom the Agent has directed payment) later than 2:00 p.m. (New York City time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(g)Maturity. This Agreement will continue in full force and effect from the Agreement Date until the Termination Date provided for in Item 3 of the Addendum.

(h)Termination on Default. Notwithstanding the foregoing, should a Default occur and be continuing, Agent will have the right to terminate this Agreement at any time without notice.

(i)Survival. Notwithstanding termination, all the terms, conditions, and provisions hereof (including Agent’s security interest in the Collateral, but excluding any obligations of Agent hereunder) will continue to be fully operative until all Obligations have been fully disposed of, concluded, paid, satisfied, and liquidated (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and obligations under the warrant and registration rights agreement issued or executed in connection herewith). All indemnification obligations of Borrowers hereunder and under the other Loan Documents shall survive termination of this Agreement and the other Loan Documents.

(j)Borrowers’ Agent. Each Borrower other than Parent hereby appoints Parent, and Parent shall act under this Agreement and the other Loan Documents, as, the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent, and each of the Lenders, may rely, and shall be fully protected in relying, on any disbursement instruction, report, information or any other notice or communication made or given by Parent, whether in its own name, as Borrowers’ Agent, or on behalf of one or more Borrowers, and Agent and each of the Lenders, shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers’ obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Borrower from taking actions permitted to be taken by a “Borrower” hereunder.

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(k)Joint and Several Liability.

(i)The Term Loan made to Borrowers and all of the other Obligations of Borrowers, including all interest, fees and expenses with respect thereto, shall constitute one joint and several direct and general obligation of all Borrowers. Notwithstanding anything to the contrary contained herein, each Borrower shall be jointly and severally, with each other Borrower, directly and unconditionally liable to Agent and each of the Lenders for all Obligations, it being understood that the Term Loan to each Borrower inures to the benefit of all Borrowers, and that Agent and each of the Lenders are relying on the joint and several liability of Borrowers as co-makers in extending the Term Loan hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any Obligation payable to Agent or any of the Lenders, it will forthwith pay the same, without notice or demand, unless such payment is then prohibited by application of law (provided such Obligation shall not be extinguished by any such prohibition).

(ii)No payment or payments made by any Borrower or any other Person or received or collected by Agent from any Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of each Borrower under this Agreement, and each Borrower shall remain liable for all of the remaining Obligations until the Obligations are paid in full.

(l)Obligations Absolute. Each Borrower agrees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any of the Lenders with respect thereto, unless such payment is then prohibited by applicable law (provided such Obligation shall not be extinguished by any such prohibition.) All Obligations shall be conclusively presumed to have been created in reliance hereon. The Obligations and other liabilities under this Agreement and the other Loan Documents shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the extension of additional credit to any Borrower or otherwise; (iii) any taking, exchange, release of or non-perfection in any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate or limited liability structure or existence of any Borrower; or (v) any other circumstance which may otherwise constitute a defense available to, or a discharge of, any Borrower. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Agent or any of the Lenders upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.

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(m)Waiver of Suretyship Defenses. Each Borrower agrees that the joint and several liability of Borrowers provided for in this Agreement shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which one or more other Borrowers may hereafter agree (other than an agreement signed by Agent specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Agent with respect to any of the Obligations, nor by any other agreements or arrangements whatever with one or more other Borrowers or with any other Person, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the Obligations and may be enforced without requiring Agent first to resort to any other right, remedy or security. Each Borrower hereby expressly waives promptness, diligence, notice of acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and any requirement that Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other Person or any Collateral.

(n)Contribution and Indemnification among Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting any of the Term Loan made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then, to the extent that such Borrower has not received the benefit of such repaid Obligations (whether through an inter-company loan or otherwise), the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount (as defined below) and the denominator of which fraction is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the greater of (i) the amount of such repaid Obligations actually received by such Borrower (whether through an inter-company loan or otherwise), and (ii) the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (x) rendering such Borrower “insolvent” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”), Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (y) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (z) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification and reimbursement under this paragraph shall be subordinate in right of payment to the prior payment in full of the Obligations.

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(o)Non-U.S. Lender. Each Lender (or any transferee or assignee thereof, including a participation holder (any such entity, a “Transferee”), that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “NonU.S. Lender”) shall deliver to the Agent and the Borrowers two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881 (c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), in each case claiming complete exemption from U.S. Federal withholding tax on payments by the Credit Parties under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms or any other forms required under applicable law within 20 days after receipt of a written request therefor from the Borrowers or the Agent. Notwithstanding any other provision of this Section 2(o), a Non-U.S. Lender shall not be required to deliver after the date hereof any form pursuant to this Section 2(o) that such Non-U.S. Lender is not legally able to deliver.

3. Interest and Fees.

(a)Interest on the Term Loan. The Term Note shall bear interest at the Applicable Rate. Interest on the Term Note shall be computed on the basis of the actual number of days elapsed over a year of 360 days. All accrued interest on the Term Note shall be payable monthly in arrears, in cash or in PIK Interest, as specified in the definition of Applicable Margin.

(b)Default Interest. To the extent permitted by law and without limiting any other right or remedy of Agent or any of the Lenders hereunder, whenever there is a Default under this Agreement, the rate of interest on the unpaid principal balance of the Obligations shall, at the option of Agent or the Required Lenders, be increased by adding the default margin identified on Item 4 of the Addendum to the interest rate otherwise in effect hereunder. In addition, upon the occurrence and during the continuation of a Default under this Agreement, all accrued PIK Interest shall immediately become due and payable in full and without any notice, demand or presentment of any kind notwithstanding any acceleration by the Required Lenders hereunder. Agent may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Borrowers acknowledge that: (i) such additional rate is a material inducement to Lenders to make the Term Loan described herein; (ii) Lenders would not have made the Term Loan in the absence of the agreement of Borrowers to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lenders that the Term Loan will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Agent and each of the Lenders in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Term Loan, and (B) compensation to Agent and each of the Lenders for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Agent’s and each of the Lenders’ entitlement to this charge will continue until all Obligations are paid in full.

(c)Fees. Borrowers will pay to Agent (to be allocated among the Lenders in accordance with their Pro Rata Shares) the fees set forth in Item 5 of the Addendum.

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(d)No Usury. Borrowers acknowledge that Agent does not intend to reserve, charge or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Agent should collect any amount from Borrowers which, if it were interest, would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations remain outstanding, will be refunded to Borrowers.

4. Representations and Warranties of Borrowers.

(a)Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc. Borrowers represent and warrant to Agent and the Lenders that: (i) the exact legal name, type of organization, jurisdiction of organization and organizational identification number of each Borrower are fully and accurately set forth on Item 6 of the Addendum, and each Borrower is duly organized and validly existing under the laws of its jurisdiction of organization; (ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Borrower’s corporate or limited liability company powers, have been duly authorized by all necessary corporate or limited liability company action, do not violate (A) any Borrower’s constituent documents, any law or regulation, including without limitation, (B) any law or regulation relating to occupational health and safety or protection of the environment, applicable to any Borrower, or any indenture, agreement, or undertaking to which any Borrower is a party or by which any Borrower or any Borrower’s property is bound, except where such violation could not reasonably be expected to have a Material Adverse Effect; (iii) this Agreement and the other Loan Documents to which any Borrower is a party constitute valid, binding and enforceable obligations of each Borrower party thereto in accordance with the terms hereof and thereof, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors’ rights generally or by generally applicable equitable principles affecting the enforcement of creditors’ rights; (iv) no Borrower has any subsidiaries or other investments in other Persons, except as set forth on Item 7 of the Addendum and except for other Permitted Investments; (v) except as set forth on Item 29 of the Addendum, each Borrower is in compliance in all material respects with all laws, rules and regulations applicable to such Borrower, including laws, rules or regulations concerning the environment, occupational health and safety and pensions or other employee benefits; (vi) except as set forth on Item

8 of the Addendum, there is no litigation or investigation pending against any Borrower (or, so far as any Borrower is aware, threatened) which, if it were decided adversely to such Borrower, could reasonably be expected to have a Material Adverse Effect (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the Term Loan hereunder, no Borrower is indebted to any other Person for money borrowed nor has any Borrower issued any guaranty of payment or performance by any other Person, except for Permitted Indebtedness; (viii) since the date of the financial statements of Borrowers most recently delivered to Agent, there has been no material adverse change in any Borrower’s business, any Borrower’s financial or operational condition or any Borrower’s business prospects; and (ix) each Borrower is, and after giving effect to the consummation of the Acquisition, the incurrence of the Term Loan under this Agreement and the application of the proceeds of such Term Loan, the Borrowers, on a consolidated basis, will be, solvent and will have sufficient revenues to pay the Borrowers’ obligations as they come due and adequate capital with which to conduct the Borrowers’ business, all determined on a consolidated basis.

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(b)Title to Assets, Other Collateral Matters. Borrowers represent and warrant to Agent and the Lenders that: (i) subject to the escrow established for the Purchased Membership Interests pursuant to the Acquisition Documents, Borrowers have good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust, security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by any Borrower, except in Agent’s favor for the benefit of the Agent and the Lenders, and except with respect to Permitted Liens; (ii) the Accounts are not subject to any material dispute, claim or right of offset and are validly owing by the applicable Customers and, subject to immaterial exceptions, are collectible by Borrowers in the ordinary course of business; (iii) all Inventory is in good condition, meets all applicable governmental standards and is currently usable or saleable in the ordinary course of the applicable Borrower’s business for a price approximating at least such Borrower’s cost thereof; (iv) all Equipment is in good condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards in all material respects; (vi) in the past five years, except as set forth on Item 9 of the Addendum (A) no Borrower has used any other legal, trade or fictitious names, and (B) other than the Acquisition, no Borrower has been a party to any merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) the chief executive office and principal place of business of each Borrower, all Inventory, all Equipment and all other Collateral is located at the addresses (including the county) set forth on Item 11 of the Addendumand has not been located at any other location during the five year period prior to the Agreement Date.

(c)Ownership Structure.Borrowers represent and warrant that Item 12 of the Addendum accurately describes the ownership of each Borrower’s capital stock, membership interests or other equity interests.

(d)Acquisition. Borrowers represent and warrant to Agent and the Lenders that (i) Borrowers have furnished to Agent true, complete and correct copies of all of the Acquisition Documents (including any schedules, exhibits and annexes thereto) as in effect on the date hereof; (ii) none of the Acquisition Documents has been amended, supplemented or modified; (iii) the Acquisition Documents constitute the complete understanding among the parties thereto in respect of the Acquisition and the other matters and transactions covered thereby; (iv) each Acquisition Document has been duly executed and delivered by the parties thereto and is a legal, valid and binding obligation of each such party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles; and (v) the Borrowers are not aware of any fact or circumstance that would prohibit the Acquisition from occurring including, without limitation, the Final Closing.

(e)Consummation of Transactions. Subject to the occurrence of the Final Closing upon satisfaction of the conditions precedent set forth in Section 1.5 of the Interest Purchase Agreement, Borrowers represent and warrant to Agent and the Lenders that, on the Agreement Date, the transactions contemplated by the Acquisition Documents will have been consummated in accordance with all applicable laws (except where such non-compliance could not reasonably be expected to have a Material Adverse Effect) and, except as consented to in writing by Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the material conditions to such consummation set forth in the Acquisition Documents shall have been fulfilled without any waiver of any such material conditions. Agent acknowledges that the Purchased Membership Interests shall be held in escrow pursuant to the satisfaction of certain conditions specified in the Interest Purchase Agreement, and Borrowers represent and warrant to Agent and Lenders that (i) the Purchased Membership Interests will be owned by CG Acquisition free of such escrow arrangement or any claim by Seller no later than 90 days after the Agreement Date, and (ii) the Seller has no right to remove the Purchased Membership Interests from such escrow arrangement or otherwise reclaim the Purchased Membership Interests or prevent CG Acquisition from becoming the absolute owner thereof no later than 90 days following the Agreement Date.

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(f)Licenses and Governmental Approvals. Borrowers represent and warrant to Agent and Lenders that, except for those Governmental Approvals the absence of which could not reasonably be expected to have a Material Adverse Effect, (i) each Borrower has all Governmental Approvals required by applicable law in order to operate its business; (ii) all such Governmental Approvals are in full force and effect; and (iii) Agent and each of the Lenders are not required to obtain any such Governmental Approval in order to enter into the transactions contemplated by this Agreement or to exercise their rights and remedies hereunder (including the liquidation of the Collateral and collecting the Accounts), except for such consents and approvals as may be required by the FCC or any state public service commission in connection with the transfer of control or assignment of a licensee of, or an authorization or license issued by such governmental entity to Vanco and as set forth on Item 29 of the Addendum and except for such consents and approvals that that would be required under federal law for Agent and each of the Lenders to exercise their rights and remedies hereunder.

(g)Additional Representations. Borrowers represent and warrant to Agent and the Lenders that: (i) no Borrower is engaged as one of such Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) no Borrower owns any real property or leases any real property other than as listed on Item 13 of the Addendum; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Item 13 of the Addendum; and (iv) a true, correct and complete list and brief description of all bank accounts maintained by each Borrower with any bank or financial institution is set forth on Item 14 of the Addendum.

(h)Intellectual Property. Borrowers represent and warrant to Agent and the Lenders that, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Item 15 of the Addendum is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Borrower is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, to the best knowledge of Borrowers, after reasonable inquiry, threatened in writing to be brought against any Borrower which would be reasonably likely to jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications.

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(i)Leases. Borrowers represent and warrant that, each Borrower enjoys peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by a Borrower exists under any of them.

(j)Material Contracts. Borrowers represent and warrant that, set forth on Item 16 of the Addendumis a description of all Material Contracts of the Borrowers, showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the applicable Borrower and, to the best of Borrowers’ knowledge, each other Person that is a party thereto in accordance with its terms, (b) is not in default due to the action or inaction of any Borrower and (c) neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under any Material Contract.

(k)Customers and Suppliers. Borrowers represent and warrant that, set forth on Item 17 of the Addendum is a list of the top 20 largest customers of the Credit Parties and the top 20 largest suppliers of Credit Parties, in each case for the year ended December 31, 2007 and the six-month period ended June 30, 2008. Except as contemplated by the BT Receivables Agreement, there has not been, and none of Credit Parties have received notice of, any termination or cancellation of, or a materially adverse modification or change in, the business relationship with any of the 10 largest customers and suppliers, and, to the knowledge of Credit Parties, such customers and suppliers intend to renew their customer or supplier contracts, as applicable, in the ordinary course and on terms as favorable as those currently in place.

(l)Taxes. Borrowers represent and warrant that, each of the Credit Parties has filed all federal, state, and other tax returns and reports required to be filed, and have paid all federal, state, and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable.

(m)FCC Licenses, Etc. Except for any change of control or similar applications to be filed with respect to Vanco as described in Item 29 of the Addendum, Borrowers represent and warrant that, all FCC, state public utility commission and other required permissions and licenses are in good standing, and that Borrowers are not aware of any claim, purported claim or unrealized claim against the validity of the Borrowers’ ability to operate now and into the future under such existing licenses.

(n)Working Capital. Borrowers represent and warrant that after giving effect to the transactions contemplated in the Debenture Documents and this Agreement (i) the Borrowers, on a consolidated basis, have not less than (a) ($8,453,687) in Adjusted Working Capital and (b) not less than $6,000,000 in cash;  and (ii) the aging and collectability of the Borrowers' accounts receivable is in all material respects similar to the aging and collectability of the accounts receivable reflected by the financial statements delivered to Agent pursuant to Item 2(p) of the Addendum. 

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5. Collateral.

(a)Grant of Security Interest. To induce the Lenders to accept this Agreement and to make the Term Loan to Borrowers, each Borrower hereby grants to Agent, for itself and as agent for each Lender, a security interest in, and assigns, mortgages and pledges to Agent, for itself and as agent for any each Lender, all of such Borrower’s right, title and interest in and to all of such Borrower’s property (other than Excluded Equipment), whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising, including all of the following (collectively, the “Collateral”):

(i)all Accounts,Inventory, Equipment (other than Excluded Equipment), Goods, General Intangibles, Intellectual Property and Negotiable Collateral;

(ii)all investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts and all funds on deposit therein;

(iii)all chattel paper (whether tangible or electronic) and contract rights;

(iv)all guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

(v)all documents, books and records relating to any Collateral or to any Borrower’s business;

(vi)all Governmental Approvals and all proceeds from Governmental Approvals, but in each case only to the extent permitted under applicable law (including, without limitation, the Communications Act of 1934);

(vii)all other property of any Borrower now or hereafter in the possession or control of Agent or any of Agent’s Affiliates (including cash, money, credits and balances of any Borrower held by or on deposit with Agent or any Affiliate of Agent);

(viii)all other assets of any Borrower in which Agent receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody or control of Agent or any Affiliate of Agent;

(ix)all of each Borrower’s commercial tort claims listed on (A) Item 18 of the Addendum(which Borrowers represent and warrant is a true, accurate and complete list of all of each Borrower’s commercial tort claims as of the Agreement Date) or (B) any other writing provided to Agent pursuant to Section 7(g); and

(x)all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

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(b)Obligations. Such grant, assignment, mortgage and transfer is made for the purpose of securing, and the Collateral secures and will continue to secure, all of the Obligations; provided that upon satisfaction of all Obligations other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement, the Lenders shall release any Liens in the Collateral.

(c)Excluded Equipment. Borrowers agree that Agent shall automatically have a security interest in the Excluded Equipment promptly after receiving any Governmental Approvals required for the lawful grant of such security interest. Borrowers agree to execute and deliver to Agent such security agreements and other documents confirming such grant as Agent may reasonably request, but any failure to do so shall not limit Agent’s security interest therein pursuant to the first sentence of this paragraph. Each Borrower represents and warrants to Agent that it does not own any Excluded Equipment.

6.Financial Covenants. Unless the Required Lenders shall otherwise consent in writing, the Borrowers, on a consolidated basis, shall comply with each of the financial covenants set forth on Item 19 of the Addendum.

7.Collateral Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 7, unless the Required Lenders shall otherwise consent in writing.

(a)Accounts. Borrowers will notify Agent promptly of and settle all Customer disputes, but, if Agent so elects while a Default exists, Agent will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and conditions as Agent deems advisable without incurring liability to any Borrower for Agent’s performance of such acts. Agent may, at any time and from time to time, contact Customers to verify Accounts and, while a Default exists, Agent may notify Customers of Agent’s security interest in the Accounts and instruct such Customers to pay such Accounts to one of the bank accounts listed on Item 14 of the Addendum. All of each Borrower’s books and records concerning Accounts and a copy of each Borrower’s general ledger will be maintained at the address of Borrowers’ chief executive office set forth on Item 11 of the Addendum. All Accounts will be, in all material respects and except as otherwise indicated in writing to Agent, bona fideand existing obligations of Customers arising out of the sale of goods and/or the rendering of services by Borrowers in the ordinary course of Borrowers’ business, owned by and owing to the applicable Borrower without defense, setoff or counterclaim, and will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens.

(b)Inventory. All Inventory will at all times be located at one of the Inventory locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum, will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens. Sales of Inventory will be made in compliance with all material requirements of applicable law.

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(c)Equipment. Borrowers will maintain all Equipment used or useful in Borrowers’ business in good and workable condition, ordinary wear and tear excepted, and, except for Excluded Equipment only for the first 90 days after the Agreement Date, subject to a perfected, first-priority security interest in Agent’s favor and free and clear of all other Liens (other than Permitted Liens), at one of the locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum.

(d)Defense of Title. All Collateral will at all times be owned by Borrowers, and Borrowers will defend Borrowers’ title to the Collateral against the claims of third parties. Borrowers will at all times keep accurate and complete records of the Collateral.

(e)Perfection; Further Assurances. No Borrower shall change its name, jurisdiction of organization, type of organization or organizational identification number; provided, however, that Vanco may change its name to “Global Capacity Direct, LLC” so long as Borrowers provide Agent with at least 5 Business Days’ notice of such name change. Borrowers will give Agent at least 30 days’ prior written notice of any change in the location of any Borrower’s principal place of business or chief executive office, any change in the locations of any Borrower’s Inventory or Equipment and any acquisition by any Borrower of any interest in real property. Each Borrower will, at Borrowers’ expense, promptly execute and deliver from time to time at Agent’s request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary or desirable to perfect or continue perfection of Agent’s security interest in Borrowers’ property or, at Agent’s request, to create and perfect a Lien on newly acquired real property. Borrowers will use all reasonable efforts to obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Agent’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers shall, immediately upon written request therefor from Agent, endorse and assign such Negotiable Collateral over to Agent and deliver actual physical possession of the Negotiable Collateral to Agent. Borrowers shall at any time and from time to time take such steps as Agent may request for Agent (i) to obtain an acknowledgment, in form and substance satisfactory to Agent, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Agent, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or chattel paper (including electronic chattel paper) in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Agent, (iii) to have Agent’s Lien noted on each certificate of title evidencing any Collateral, and (iv) otherwise to insure the continued perfection and priority of Agent’s security interest in any of the Collateral and of the preservation of its rights therein. Agent may, from time to time at Borrowers’ expense, obtain an appraisal on some or all of the Collateral; provided, however, that Borrowers shall not be required to reimburse Agent for more than one such appraisal per calendar year (it being understood that any such appraisal conducted while a Default exists shall not count against such one-per-year limitation).

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(f)Insurance. Borrowers will obtain and maintain in full force and effect insurance covering the Collateral against all customary risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such customary risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent, which policies will name Agent, for itself and each of the Lenders, as an additional insured and provide that loss thereunder will be payable to Agent as Agent’s interests may appear upon a loss payee endorsement reasonably acceptable to Agent. Borrowers will also obtain and maintain in full force and effect liability insurance and such other types of insurance as Agent may reasonably require (including business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent. All proceeds of any such insurance will be paid over to Agent directly, and Agent may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Agent determines or, in Agent’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Borrowers will provide to Agent on or prior to the Agreement Date and from time to time thereafter, certificates showing such coverage in effect and, at Agent’s request, the underlying policies.

(g)Commercial Tort Claims. If any Borrower shall at any time acquire a commercial tort claim, Borrowers shall immediately notify Agent in a writing signed by the applicable Borrower of the details thereof and grant to Agent, for itself and each of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

(h)Financing Statements. Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrowers or words of similar effect and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the applicable Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and each Borrower hereby ratifies and re-authorizes any such financing statement filed by Agent on or prior to the Agreement Date. Each Borrower agrees to furnish any such information to Agent promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Agent on behalf of any Borrower or filed by Agent without the signature of any Borrower and may be filed at any time in any jurisdiction. Each Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any Borrower as the debtor and Agent as the secured party without the prior written consent of Agent, and each Borrower agrees that it shall not do so without the prior written consent of Agent.

(i) Governmental Approvals.

(i)Each Borrower shall maintain in full force and effect all Governmental Approvals required by applicable law in order to operate such Borrower’s business, except for those Governmental Approvals, the absence of which could not reasonably be expected to result in a Material Adverse Effect. Borrowers shall promptly notify Agent in the event that any such license or approval is revoked or if any Borrower receives any notice from any licensing authority or other governmental authority which alleges that any Borrower is or may be in violation of any applicable law, rule, regulation or licensing requirement.

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(ii)Borrowers shall, as described below, act immediately, upon notice of a Default, to permit Lender to realize the full value of foreclosure on the Collateral, including, without limitation, by obtaining any and all regulatory approvals required to do so. For example, and without limitation of the foregoing, if the approval of the FCC or any state public service commission is required in connection with any action taken by the Agent or any Lender (including any of their respective agents, officers, and attorneys) in the exercise of their rights and remedies hereunder with respect to the Collateral, in order to facilitate the intended realization of the value of the Collateral the Borrowers shall immediately and in no event later than three (3) Business Days following notice thereof take such action as is requested by Lender or Agent to obtain each and any approval required to allow a Lender the full benefit of the Collateral and Borrowers shall diligently pursue the obtaining of such approvals until obtained in accordance with the instructions of Agent or a Lender and applicable law. For avoidance of doubt, and by way of example, immediately upon notice thereof, Borrowers shall or shall cause their counsel to prepare, or at the option of Agent or a Lender to cooperate with counsel of Agent or a Lender in preparing, relevant applications to the FCC and each applicable state public service commission to seek approval of a substantial transfer of control of the applicable Borrower or its licenses and authorizations as instructed by Agent or a Lender, or to do any other action to protect for a Lender the value of the applicable Borrower’s licenses and authorizations. Without diminution of the foregoing, the Borrowers shall, immediately following the occurrence of a Default which is continuing, upon the written request and instructions of the Agent, execute and deliver (or cause the execution and delivery of) all relevant applications, certificates, instruments, agreements and other documents to the FCC or the applicable state public service commission, or at the option of Agent or a Lender, to Agent or a Lender for filing with Borrowers’ cooperation, which are required to be filed in connection with obtaining any required approval of the FCC or any state public service commission and take such other action as the Agent may request in connection therewith.

(j) Conduct of Business. The Borrowers shall conduct their business in substantially the same manner as currently conducted.

(k) Bank Accounts.

(i)The Borrowers (other than Magenta) will maintain their principal accounts for operation, administration, cash management and other deposit accounts for the conduct of the Borrowers’ business with the Depository Bank. On or prior to the Agreement Date, the Borrowers will establish and maintain (so long as the Obligations are outstanding), the Private Bank Account Control Agreement, which shall be applicable to all bank accounts of the Borrowers, other than the bank account maintained by Magenta in the United Kingdom and the account subject to the HSBC Account Control Agreement.

(ii) Magenta will maintain a single bank account (as disclosed to Agent on Item 14 of the Addendum) with HSBC Bank plc (the “Magenta Account”). On or prior to the Agreement Date, Magenta will establish and maintain (so long as the Obligations are outstanding), the Magenta Three-Party Account Agreement, pursuant to which all amounts deposited in the Magenta Account in excess of £75,000 shall automatically be transferred (on a daily basis if applicable) to the account of Borrowers identified in the Magenta Three-Party Account Agreement which is subject to the HSBC Account Control Agreement.

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(l)Employment Agreements. The non-compete provisions contained in the Employment Agreements shall remain in full force and effect and shall not be amended, modified or waived without the Agent’s written consent.

8.Negative Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 8, unless the Required Lenders shall otherwise consent in writing.

(a)No Merger or Disposition of Assets. No Borrower will merge or consolidate with any other Person, or purchase all or substantially all of the assets of any other Person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of such Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, each Borrower may make Permitted Dispositions.

(b)No Debt or Liens; Taxes. No Borrower will obtain or attempt to obtain from any Person other than Agent any loans, advances, or other financial accommodations or other Indebtedness of any kind, nor will any Borrower enter into any direct or indirect guaranty of any obligation of another Person, other than Permitted Indebtedness. No Borrower will permit any of its assets to be subject to any Lien other than Permitted Liens. Each Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrowers will, upon request by Agent, promptly furnish Agent with proof satisfactory to Agent that Borrowers have made such payments and deposits.

(c)No Distributions; Payments on Subordinated Debt. No Borrower will retire, repurchase or redeem any of such Borrower’s Stock in such Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of Stock) to any owner or holder of such Borrower’s Stock; provided, however, that any Borrower may pay cash dividends or distributions to any other Borrower which owns such Borrower’s Stock. No Borrower will refinance, repurchase, defease or make any payment on any Subordinated Debt, other than payments expressly permitted by the Debenture Intercreditor Agreement or subordination provisions applicable to such Subordinated Debt.

(d)No ERISA Liabilities. Borrowers will make timely payments of all contributions required to meet the minimum funding standards for Borrowers’ employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Agent the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by any Borrower of any governmental notice (other than routine requests for information) in respect of any such plan.

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(e)Transactions with Affiliates. No Borrower will engage in any transaction with any of such Borrower’s or any other Borrower’s officers, directors, employees or other Affiliates, except for an “arms-length” transaction on terms no less favorable to such Borrower than would be granted to such Borrower in a transaction with a Person who is not an Affiliate of any Borrower, which transaction shall be approved by such Borrower’s disinterested directors or managers and shall be disclosed in a timely manner to Agent prior to the consummation of the transaction.

(f)Loans/Investments. No Borrower will make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit to customers in the ordinary course of business; and (ii) Permitted Investments. No Borrower shall purchase, acquire or otherwise invest in any Person except Permitted Investments and investments in other Borrowers; provided, however, that the aggregate amount of intercompany advances and other transfers to Magenta by the other Borrowers shall not exceed the actual cash expenses of Magenta, which such actual cash expenses shall be in the ordinary course and consistent with past practices of Magenta. Without limiting the generality of the foregoing, no Borrower shall create any new subsidiary or make loans to, transfer any money or other assets to or otherwise invest in any subsidiary unless such subsidiary is or becomes a Borrower hereunder pursuant to documentation acceptable to Agent in its reasonable discretion.

(g)Capital Expenditures. Borrowers shall not make or incur capital expenditures in excess of the amount set forth on Item 21 of the Addendum during any fiscal year, determined for all Borrowers on a consolidated basis.

(h)Compensation. Borrowers shall not increase the total compensation paid to their officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year of Borrowers in an aggregate amount for all such officers and directors in excess of the limit specified in Item 22 of the Addendum.

(i)Amendments of Documents. No Borrower shall amend or modify (i) any Acquisition Document or any other note, instrument or agreement in connection with the Acquisition without the prior written consent of Agent, (ii) its articles or certificate of incorporation, articles or certificate of organization, by-laws, limited liability company agreement or other constituent documents, or (iii) any Debenture Document or any other note, instrument or agreement in connection with any other Subordinated Debt without the prior written consent of Agent; provided, however, that Borrowers may amend the Debenture Documents without the consent of the Agent to the extent expressly permitted by the Debenture Intercreditor Agreement.

(j)Capitalized Leases. The Borrowers, taken as a whole, shall not incur greater than $500,000 in additional Capitalized Lease Obligations after the date hereof; providedfurther, that such Capitalized Lease Obligations shall be (i) on terms and conditions consistent with current market conditions for equipment of that kind, and (ii) solely for the purchase and/or lease of new pieces of or as a replacement of existing equipment.

(k)Use of Proceeds. Borrowers shall not use the proceeds of the Term Loan for any purpose other than (i) consummating the Acquisition, and (ii) general working capital purposes.

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(l)BT Receivable. Borrowers shall not compromise or settle any dispute, provide a discount, write-off, or waive collection of any part of the BT Receivable without the prior written consent of the Agent.

9. Reporting and Information.

(a)Financial StatementsBorrowers will submit to Agent as soon as available, and in any case not later than thirty (30) days after the end of each month, a balance sheet and a detailed statement of profit and loss by business unit and a statement of cash flows, in each case prepared in accordance with GAAP on a consolidated (and, if requested by Agent, consolidating) basis, certified by the chief financial or accounting officer of Parent as presenting fairly, in accordance with GAAP, Borrowers’ financial condition as of the last day of such month and Borrowers’ results of operations for such month and for the portion of Borrowers’ fiscal year ending with such month. Borrowers will also submit to Agent annual financial statements within 120 days after the end of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders’ equity, and a statement of cash flows, in each case prepared in accordance with the requirements set forth on Item 23 of the Addendum on a consolidated (and, if requested by Agent, consolidating) basis. Borrowers will also submit to Agent annually at least 60 days prior to Borrowers’ fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement on a consolidated (and, if requested by Agent, consolidating) basis. Together with each monthly and annual financial statement, Borrowers will deliver to Agent the certification of the chief financial or accounting officer of Parent in the form of Exhibit B attached hereto to the effect that Borrowers are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if Borrowers are not in compliance, describing the nature of any noncompliance and the steps Borrowers are taking or propose to take to remedy the same. Borrowers shall, promptly, upon request, furnish such other information concerning the condition, operations, financial or otherwise, of any Borrower as the Agent may from time to time request.

(b)Collateral Reports. Borrowers shall deliver to Agent within fifteen (15) days after the end of each month a report, reflecting the status as of the end of each month or for the month then ended, as the case may be, and certified by the Chief Executive Officer or Chief Financial Officer of Parent as being true and correct in all material respects, containing (i) a current detailed aging, by total and by Customer, of Borrowers’ Accounts, (ii) a current detailed aging, by total and by vendor, of Borrowers’ accounts payable, (iii) a schedule detailing loans and intercompany transfers to Magenta from any other Borrower, and (iv) a true, correct and complete copy of each new material contract entered into by any Borrower for the sale, lease or other provision of goods or services by such Borrower and for the lease or purchase of circuit capacity by any Borrower, all of which shall be set forth in a form and shall contain such information as is reasonably acceptable to Agent. At Agent’s request, Borrowers shall deliver such information more or less often than described above and such other information with respect to the Collateral, Borrowers or Borrowers’ business or financial condition as Agent may reasonably request from time to time.

(c)Tax Returns. Borrowers shall provide Agent with a copy of all federal tax returns of each Borrower no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

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(d)SEC Filings. Borrowers shall provide Agent with a copy of all reports and other filings made by Borrowers with the Securities and Exchange Commission no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

(e)BT Receivable. Borrowers will submit to Agent, promptly, and in any case not later than (i) one (1) day following each receipt of a BT Receivable Payment and (ii) two (2) Business Days after the end of each month, a reconciliation and report showing any amounts collected with respect of the BT Receivable, the amount left uncollected and, any issues, disputes and offsets with respect to collection of the BT Receivable, and such additional information with respect thereto as requested by Agent.

(f)Monthly Recurring Circuit Revenue and Recurring Circuit Margin. Borrowers will submit to Agent, as soon as available, and in any case not later than thirty (30) days after the end of each month, a summary of Monthly Recurring Circuit Revenue and Recurring Circuit Margin for the Strategic Sourcing Business Unit.

(g)Other Information. Borrowers will notify Agent as promptly as possible of any Default, any receipt by any Borrower of notice from any governmental authority that any Borrower has or may have violated any law, rule or regulation applicable to any Borrower or the terms or conditions of any permit or license any Borrower holds or is required to hold in connection with the conduct of such Borrower’s business, any amendment to any Borrower’s constituent documents and any change in any Borrower’s senior management, and the commencement of any material litigation, claim or action by or against any Borrower.

10. Inspection Rights; Expenses; Etc.

(a)Field Examinations; Inspections. Agent and any of the Lenders, shall have the right without hindrance or delay to conduct field examinations to inspect the Collateral, all other assets of Borrowers or any portion thereof, Borrowers’ books and records and all other aspects of Borrowers’ business, and to examine and make copies of Borrowers’ records, the Collateral and all other assets of Borrowers or any portion thereof, in each case wherever located, and Agent and any of the Lenders may enter upon each Borrower’s premises for such purposes, without notice, during business hours. Borrowers will assist Agent and any of the Lenders in whatever way necessary to make each such examination, and Borrowers agree to pay for such examinations as more fully described on Item 24 of the Addendum. Agent and any of the Lenders may discuss each Borrower’s financial condition with Borrowers’ independent accountants without liability to Agent or any of the Lenders or such accountants. Agent and any of the Lenders shall have full access to all records available to Borrowers from any credit reporting service, bureau or similar service and shall have the right to examine and make copies of any such records. Agent and any of the Lenders may exhibit a copy of this Agreement to such service and such service shall be entitled to rely on the provisions hereof in providing access to Agent and any of the Lenders as provided herein.

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(b)Performance by Agent. Agent may, from time to time at Agent’s option, perform any agreement of any Borrower hereunder which such Borrower fails to perform and take any other action which Agent deems necessary for the maintenance or preservation of any of the Collateral or Agent’s interest therein, and Borrowers agree to reimburse Agent immediately on demand for all of Agent’s expenses in connection with the foregoing (including, without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense is incurred until reimbursed by Borrowers.

11.Rights of Setoff, Application of Payments, Etc. Agent and any of the Lenders will be entitled to hold or set off all sums and all other property of any Borrower at any time to any Borrower’s credit or in Agent’s or any Lender’s possession (or the possession of any of Agent’s or Lender’s Affiliates) by pledge or otherwise or upon or in which Agent or any of the Lenders may have a Lien, as security for any and all of the Obligations. Recourse to the Collateral or other security for the Obligations will not at any time be required and each Borrower hereby waives any right of marshalling that such Borrower may have. Each Borrower’s obligation to pay or repay the Obligations is unconditional. Borrowers agree that, while a Default exists, Agent or any of the Lenders may take such action with regard to the custody and collection of Accounts as Agent or any of the Lenders may deem necessary. Each Borrower agrees that failure to take any action with regard to any given Account will not be unreasonable until and unless Agent receives a written request for specific action from Borrowers’ Agent with regard thereto and fails to respond thereto within a commercially reasonable time. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any of the Lenders from or on behalf of any Borrower, and each Borrower hereby irrevocably agrees that Agent or any of the Lenders shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or any of the Lenders against the Obligations, in such manner and in such order as the Lenders may deem advisable.

12.Attorney-in-Fact. Each Borrower hereby appoints and constitutes Agent as such Borrower’s attorney-in-fact: (a) at any time, (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Agent’s possession and to deposit or otherwise collect the same; (ii) to send verifications of Accounts to Customers; and (iii) to execute in such Borrower’s name any financing statements, affidavits and notices with regard to any and all Lien rights; and (b) while any Default exists, (i) to receive, open, and dispose of all mail addressed to such Borrower; (ii) to notify the postal authorities to change the address and delivery of mail addressed to such Borrower to such address as Agent may designate; (iii) to sign such Borrower’s name on any invoice or bill of lading relating to the Collateral, on drafts against Customers, and notices to Customers; (iv) to sign any agreement or certificate in connection with any insurance policy of any Borrower (including all documentation to receive benefit payments thereunder and to cancel such insurance policy and receive a refund of the unearned premium with respect thereto); and (v) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Agent has any commitment to Borrowers under this Agreement or otherwise (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and other than inchoate indemnification obligations and obligations under the warrant and the registration rights agreement).

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13. Defaults and Remedies.

(a)Defaults. For purposes of this Agreement, “Default” means the occurrence of any of the following events: (i) non-payment when due of any amount payable on any of the Obligations (in the case of non-payment of interest only, including, but not limited to any non-payment of PIK Interest pursuant to Section 3(b), if such non-payment continues one (1) Business Day after the date when due and for the avoidance of doubt, the default margin identified on Item 4 of the Addendum shall be applicable during the non-payment period); (ii) breach of any covenant or failure to perform any agreement or failure to meet any of any Credit Party’s obligations contained herein, in any other Loan Document or in any agreement out of which any of the Obligations arose if such failure continues for five (5) Business Days (excluding Sections 8, 9, 7(f), and 7(k), where no cure period shall be applicable); (iii) any statement, representation, or warranty made in writing in this Agreement, in any other Loan Document or in any other writing or statement at any time furnished or made or deemed furnished or made by any Credit Party to Agent proves to have been untrue in any material respect as of the date furnished or made or deemed furnished or made; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debenture Documents, or any Borrower’s default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 25 of the Addendum (after giving effect to any applicable notice and cure period); (v) suspension of the operation of any Borrower’s present business; (vi) any Borrower becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against any Borrower; (vii) entry of any judgment in excess of the amount set forth on Item 26 of the Addendum against any Borrower or creation, assertion, or filing of any judgment or tax Lien against the property of any Borrower, in each case which remains undischarged for thirty (30) days after such entry or filing; (viii) death or withdrawal of any partner of any Borrower which is a partnership, or dissolution, merger, or consolidation of any Borrower which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any Borrower; (x) sale, transfer or exchange, either directly or indirectly, of a controlling Stock interest of any Credit Party (without limiting the generality of the foregoing, a Default shall exist if (A) Parent shall cease to own, directly or indirectly, 100% of the Stock of any other Borrower or cease to have direct or indirect voting control of any other Borrower (excluding Vanco until the Final Closing), (B) any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty-five percent (25%) of the voting power of all classes of stock of Parent; (xi) appointment of a receiver for any of the Collateral or for any other property in which any Credit Party has an interest; (xii) seizure of any Collateral by any Person other than Agent; (xiii) any person identified on Item 27 of the Addendum shall for any reason cease to hold the office of the applicable Borrower set forth opposite such person’s name on Item 27 of the Addendum (or any such person shall cease to perform the duties generally associated with such office) and a replacement reasonably satisfactory to Agent shall not be appointed within 90 days; (xiv) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a Material Adverse Effect; (xv) payment by any Borrower on the Debenture Indebtedness or any other Subordinated Debt in violation of the Debenture Intercreditor Agreement or any other applicable subordination agreement; (xvi) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any Borrower’s employee pension benefit plans; (xvii) any event of default shall occur under (after giving effect to any applicable notice and cure period) under the Acquisition Documents (other than a termination of the Management Agreement as a result of the Final Closing); (xviii) the Final Closing shall have not occurred by ninety-one (91) days from the Agreement Date; or (xix) except for Transfer Applications (as such term is defined in the Interest Purchase Agreement) to be approved by the applicable regulatory authorities in California, Pennsylvania and Tennessee (which such Transfer Applications shall in any event be approved within one hundred twenty (120) days), any Transfer Application shall not have been approved by the earliest to occur of (A) expiration of the STA Requests unless replaced by a permanent authorization and (B) ninety (90) days from the date of this Agreement.

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(b)Remedies. If a Default occurs and is continuing, in each case without demand or notice to any Borrower, any other Credit Party or any other Person (unless such notice is expressly required hereunder or under applicable law), the Required Lenders may authorize and instruct the Agent to do any one of the following on behalf of the Lenders, all of which such actions are, subject to any applicable law to the extent any such law may not be waived, permitted under this Agreement:

(i)declare the entire principal amount of the Term Loan outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

(ii)notify Customers that the Accounts have been assigned to Agent and that Agent has a security interest therein, collect them directly, and charge the collection costs and expenses to Borrowers’ loan account.

(iii)exercise any right or remedy available to any Borrower under one or more contracts of such Borrower and sell or otherwise dispose of any such contract.

(iv)(A) exercise any of its remedies under any other Loan Document, (B) apply any cash collateral to the Obligations (without limiting the foregoing, Agent may instruct any bank or other financial institution holding any cash, certificate of deposit or other Collateral to pay over such Collateral to Agent), and (C) draw on any letter of credit issued for the benefit of Agent in connection with this Agreement or any other Loan Document and apply the proceeds thereof to the Obligations.

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(v)make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral. Borrowers authorize Agent or any of the Lenders to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any Lien which in Agent’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

(vi)ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

(vii)without regard to any waste, adequacy of the security or solvency of any Borrower, apply for the appointment of a receiver of the Collateral, to which appointment each Borrower hereby consents, whether or not foreclosure or repossession proceedings have been commenced hereunder or under any other Loan Document and whether or not a foreclosure sale or secured party sale has occurred.

(viii)cancel any insurance policy of any Borrower in exchange for a refund of the unearned premium with respect thereto, and each Borrower hereby authorizes any insurance company which has issued any such policy to make such payment directly to Agent for application to the Obligations;

(ix)exercise any of the remedies available to Agent as a secured party under the UCC as in effect in any applicable jurisdiction, or otherwise available to Agent under applicable law. Borrowers agree, upon demand by Agent or any of the Lenders, while a Default exists, to cease the sale or other disposition of the Collateral, except with Agent’s prior written consent, and to assemble at Borrowers’ expense all the Collateral at a convenient place acceptable to Agent. Agent may charge to Borrowers’ loan account and Borrowers will pay Agent upon demand all costs and expenses, including reasonable attorneys’ fees (including fees of attorneys that are regular salaried employees of Agent or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment, compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Agent or against any Borrower concerning any matter growing out of or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Agent pays any state, city, local, federal, or other tax or levy attributable to the Collateral (excluding taxes on income realized by Agent), Borrowers will repay to Agent the amount of tax so paid by Agent. Borrowers agree that Agent may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by Liens prior to Agent’s security interest. Borrowers will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Agent or any of the Lenders.

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(c)Notices. If any notice of intended disposition of the Collateral or of any other act by Agent is required by law or court order and a specific time period is not stated therein, such notice, if given five (5) Business Days before such disposition or act, in accordance with the provisions of Section 16(a), will be deemed reasonably and properly given.

(d)License. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and each Borrower agrees that all of its rights under all licenses and all franchise agreements shall inure to Agent’s benefit.

(e)Remedies Cumulative. Agent’s and any Lender’s rights and remedies under this Agreement and all other Loan Documents shall be cumulative. Agent and any of the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Agent or any of the Lenders of one right or remedy shall be deemed an election, and no waiver by Agent or any of the Lenders of any default on Borrowers’ part shall be deemed a continuing waiver. No delay by Agent or any of the Lenders shall constitute a waiver, election or acquiescence by it.

14. Agent.

(a)Appointment. Each Lender hereby irrevocably appoints and authorizes the Agent to perform the duties of the Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Term Loan outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to the Agent, and, subject to Section 2 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agent shall not have any liability to the Lenders for the Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Term Loan, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Term Loan and Agent Advances, for the Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Credit Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by the Agent of the rights and remedies specifically authorized to be exercised by the Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 14(c) of this Agreement, to take such action as the Agent deems appropriate on its behalf to administer the Term Loan and the Loan Documents and to exercise such other powers delegated to the Agent by the terms hereof or the other Loan Documents (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Term Loan), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of the Term Loan; provided, however, that the Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law.

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(b)Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the making and the continuance of the Term Loan hereunder and shall make its own appraisal of the creditworthiness of the Credit Parties and the value of the Collateral, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Term Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, the Agent shall provide to such Lender any documents or reports delivered to the Agent by the Credit Parties pursuant to the terms of this Agreement or any other Loan Document. If the Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender any time that the Required Lenders have instructed the Agent to act or refrain from acting pursuant hereto.

(c)Rights, Exculpation, Etc.The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agent (i) may treat the payee of the Term Loan as the owner thereof until the Agent receives written notice of the assignment or transfer thereof, pursuant to Section 16(f) hereof, signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including, without limitation, counsel to the Agent or counsel to the Credit Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counselor experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the Agent's Lien thereon, or any certificate prepared by any Borrower in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The Agent shall not be liable for any apportionment or distribution of payments made in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders.

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(d)Reliance.The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

(e)Indemnification. To the extent that the Agent is hot reimbursed and indemnified by any Credit Party, the Lenders will reimburse and indemnify the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including, without limitation, advances and disbursements made pursuant to Section 14(h); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from the Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 14(e) shall survive the payment in full of the Term Loan and the termination of this Agreement.

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(f)Agent Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of the Term Loan. The terms “Lenders” or “Required Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Required Lenders. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers as if it were not acting as the Agent pursuant hereto without any duty to account to the other Lenders.

(g)Successor Agent.

(i) The Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at least 30 Business Days' prior written notice to the Borrowers and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below.

(ii) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Agent, and the Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After the Agent's resignation hereunder as the Agent, the provisions of this Paragraph 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the other Loan Documents.

(iii) If a successor Agent shall not have been so appointed within said 30 Business Day period, the Agent shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above

(h)Collateral Matters.

(i) The Agent may from time to time make such disbursements and advances (“Agent Advances”) which the Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Term Loan and other Obligations or to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 16(j). The Agent Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate of interest then applicable to the Term Loan. The Agent Advances shall constitute Obligations hereunder. The Agent shall notify each Lender and the Borrowers in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation to its obligations pursuant to Section 14(e), each Lender agrees that it shall make available to the Agent, upon the Agent's demand, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to the Agent by such Lender, the Agent shall be entitled to recover such funds on demand from such Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Agent at the Default Rate.

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(ii) The Lenders hereby irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral upon termination of the Total Commitment and payment and satisfaction of the Term Loan and all other Obligations which have matured and which the Agent has been notified in writing are then due and payable; or constituting property being sold or disposed of in the ordinary course of Borrower's or any of its Subsidiaries' business or otherwise in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which neither Borrowers nor any of their Subsidiaries owned any interest at the time the Lien was granted or any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 14(h)(i).

(iii) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 14(h(ii)), each Lender agrees to confirm in writing, upon request by the Agent, the authority to release Collateral conferred upon the Agent under Section 14(h)(ii). Upon receipt by the Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Credit Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent and the Lenders upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Credit Party in respect of) all interests in the Collateral retained by Borrowers or any of their Subsidiaries.

(iv) The Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Credit Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent in this Section 14(h) or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein.

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(i)Agency for Perfection. Each Lender hereby appoints the Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and the Agent and each Lender hereby acknowledges that it holds possession of or otherwise controls any such Collateral for the benefit of the Agent and the Lenders as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. In addition, the Agent shall also have the power and authority hereunder to appoint such other sub-agents as may be necessary or required under applicable state law or otherwise to perform its duties and enforce its rights with respect to the Collateral and under the Loan Documents. Borrowers by their execution and delivery of this Agreement hereby consents to the foregoing.

15.Indemnification.

(a)Borrowers jointly and severally agree to defend, indemnify, and hold harmless Agent and Agent’s and any of the Lender’s participants, directors, officers, employees, Affiliates, representatives, attorneys and agents (each an “Indemnified Person”) from and against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or threatened release of any hazardous materials in connection with any Borrower’s business on, at or from any property at any time owned or operated by any Borrower, including, without limitation, reasonable attorneys’ and consultants’ fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. Without limiting the foregoing and for purposes other than Capstone Investments, Borrowers represent and warrant that there has been no loan broker or investment banker involved in connection with the transactions contemplated hereby, and Borrowers agree to indemnify and hold Agent and any of the Lenders and their participants harmless from any claim of compensation payable to any loan broker or investment banker in connection with the transactions contemplated hereby.

(b)All payments by any Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any and all taxes other than income taxes imposed on Agent or any of the Lenders (“Indemnified Taxes”), unless such Taxes are required by law or the administration thereof to be withheld or deducted. If any Borrower, Agent or Lender or any participant is required by applicable law to deduct or pay any Indemnified Taxes in respect of any payment by or on account of any obligation of a Borrower hereunder or under any other Loan Document, then, if requested by Agent, any Lender or any participant, the sum payable shall be increased by that Borrower by such amount as is necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section), Agent and any of the Lenders and their participants receive an amount equal to the sum Agent and any of the Lenders and such participants would have received had no such deductions or payments been required.

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(c)Borrowers shall indemnify Agent, the Lenders and their participants, within 5 days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, any of the Lenders and their participants and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrowers’ Agent by Agent or any participant shall be conclusive absent manifest error.

(d)As soon as practicable after any payment of Indemnified Taxes by a Borrower to a governmental authority, Borrowers’ Agent shall deliver to Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

16.General Provisions.

(a)Notices. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile transmission, upon transmittal if confirmed by the sender’s facsimile device; provided that in the case of notices to Agent, Agent will be charged with knowledge of the contents thereof only when such notice is actually received by Agent. A telephonic notice to Agent as understood by Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. Notices to Agent or Borrowers will be sent to the addresses set forth on Item 28 of the Addendum, or any other address for Borrowers or Agent of which the other is notified by like notice.

(b)Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Term Loan payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the Term Loan payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Term Loan that is required for the Lenders or any of them to take any action hereunder, (iv) amend the definition of “Required Lenders” or “Pro Rata Share”, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents) or subordinate any Lien granted in favor of the Agent for the benefit of the Lenders (except as otherwise provided in this Agreement and the other Loan Documents), or release the Borrower or (vi) amend, modify or waive this Section 16(b) of this Agreement, in each case, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents.

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(c)No Waiver. No waiver hereunder will be valid unless in writing signed by Required Lenders (or by Agent at the request of the Required Lenders) and then only to the extent therein stated. No delay or failure on Agent’s or any Lender’s part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Agent’s or any Lender’s right to exercise any other right or remedy.

(d)Time of Essence. Time is of the essence of this Agreement.

(e)Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f)Assignments and Participations.

(i) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Credit Party and the Agent and each Lender and their respective successors and assigns; provided, however, that none of the Credit Parties may assign or transfer any of its rights hereunder without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void.

(ii) Each Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Term Loan made by it); provided, however, that (A) such assignment is in an amount which is at least $500,000 or a multiple of $100,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $500,000 or a multiple of $100,000 in excess thereof), (B) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, and such parties shall deliver to the Agent a processing and recordation fee of $5,000 (except the payment of such fee shall not be required in connection with an assignment by a Lender to an Affiliate of such Lender or Related Fund of such Lender), and (C) no written consent of the Agent shall be required in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Agent (or such shorter period as shall be agreed to by the Agent and the parties to such assignment), (1) the assignee thereunder shall become a “Lender” hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (2) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything contained to the contrary in this Section 16(f)(ii), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agent; provided, that (x) the Borrowers and the Agent may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned until such Lender and its assignee shall have executed and delivered an Assignment and Acceptance to the Agent for recordation and (y) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agent or any other Person shall not affect the legality, validity or binding effect of such assignment.

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(iii) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (A) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (B) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any of its Subsidiaries or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (C) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (D) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (E) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (F) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(iv) The Agent shall, on behalf of the Borrowers, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Term Loan (the “Registered Loans”) owing to each Lender from time to time. Other than in connection with an assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender shall maintain a register comparable to the Register.

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(v) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any promissory notes subject to such assignment, the Agent shall, if the Agent consents to such assignment and if such Assignment and Acceptance has been completed (A) accept such Assignment and Acceptance and (B) record the information contained therein in the Register.

(vi)A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register) (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register), together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same) on the Register, the Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.

(vii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the “Participant Register”). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(viii) Any foreign Person who purchases or is assigned or participates in any portion of such Registered Loan shall comply with Section 2(o).

(ix) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Term Loan made by it); provided, that (A) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (C) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (1) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Term Loan, (2) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Term Loan or the fees payable under this Agreement, or (3) actions directly effecting a release of all or a substantial portion of the Collateral or any Credit Party (except as set forth in Section 14(h) of this Agreement or any other Loan Document).

47

(g)Governing Law; Submission to Jurisdiction, Service, Etc. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States Federal Court sitting in New York, New York or any New York state court sitting in New York, New York in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents, and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Each Borrower waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Parent at Borrowers’ address for notices pursuant to this Agreement, and service so made shall be deemed to be completed with respect to all Borrowers five (5) days after the same shall have been so deposited in the United States mails. Nothing herein shall limit the right of Agent or any of the Lenders to bring proceedings against any Borrower or any Affiliate of any Borrower in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent or any of the Lenders or any other holder of any Obligations, or any Affiliate of Agent or any of the Lenders or any other holder of any Obligations, involving, directly or indirectly, any matter in any way arising out of, related to or connected with any Loan Document shall be brought only in a United States Federal Court or New York state court sitting in New York, New York. Nothing in this Agreement shall be deemed or operate to affect the right of Agent or any of the Lenders to serve legal process in any other manner permitted by law or to preclude the enforcement by Agent or any of the Lenders of any judgment or order obtained in such forum or the taking of any action under this Agreement or any other Loan Document to enforce same in any other appropriate forum or jurisdiction.

(h)Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS, EACH LENDER AND AGENT HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. EACH BORROWER, EACH LENDER AND Agent ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

48

(i)Waiver of Hearing. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING AGENT, ANY OF THE LENDERS, THEIR SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH Agent OR ANY OF THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT, IF Agent OR ANY OF THE LENDERS FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW.

(j)Expenses. Borrowers shall pay on demand all of Agent’s and any of the Lender’s costs and expenses in connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of this Agreement, including the reasonable fees and out-of-pocket expenses of Agent’s and any of the Lender’s counsel, in each case whether incurred on, prior or subsequent to the Agreement Date. In addition, Borrowers shall pay any and all stamp and other taxes and recording and filing fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. All provisions in this Agreement providing for the payment or reimbursement of Agent’s or any of the Lender’s attorneys’ fees and expenses include, without limitation, such fees and expenses incurred pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code.

(k)Execution in Counterparts; Execution by Fax or E-Mail; Waiver of Acceptance. This Agreement may be executed in separate counterparts, all of which shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail shall be equally as effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Any party delivering an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail also shall deliver an original executed counterpart of this Agreement or such other Loan Document, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement or such other Loan Document. To the fullest extent permitted by applicable law, each Borrower waives notice of Agent’s and any of the Lender’s acceptance of this Agreement and the other Loan Documents.

49

(l)No Third-Party Beneficiaries. Except as expressly set forth herein, neither (i) any stockholder or owner of any other equity interest in any Borrower, (ii) any of Borrower’s employees or creditors (other than Agent and any of the Lenders and their Affiliates), nor (iii) any other Person claiming by or through any Borrower shall be entitled to rely on this Agreement or have any rights, remedies or claims against Agent or any of the Lenders or any Affiliates of them under or in connection with this Agreement.

(m)Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Agent, the Lenders and Borrowers and supersede all prior agreements and understandings relating to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

50

IN WITNESS WHEREOF, the undersigned have executed this Term Loan and Security Agreement as of the day and year first above written.

Borrowers:

CAPITAL GROWTH SYSTEMS, INC.

By:

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:

Name:

Title:

CENTREPATH, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:

Name:

Title:

FNS 2007, INC.

By:

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL CAPACITY DIRECT, LLC

By:

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:

Name:

Title:

52

Agent and Lender:

ACF CGS, L.L.C.

By:

Name:

Title:

EX-10.9 10 v132473_ex10-9.htm

SECURED TERM LOAN PROMISSORY NOTE

$8,500,000 November __, 2008 Chicago, Illinois

FOR VALUE RECEIVED, the undersigned, CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein collectively as the “Borrowers”), jointly and severally promise to pay to the order of ACF CGS, L.L.C., a Delaware limited liability company as administrative agent (the “Agent”), at the office of the Agent located at 570 Lexington Avenue, 40^th Floor New York, NY 10022 or such other office as the holder hereof may from time to time designate in writing, in lawful money of the United States of America and in immediate available funds, the principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), together with interest from and after the date hereof on the unpaid principal balance outstanding at a variable rate per annum as set forth in the Term Loan and Security Agreement dated as of even date herewith, between Agent, Borrowers and Lender and the other lenders from time to time party thereto (as amended from time to time, the “Term Loan Agreement”).

This Secured Term Loan Promissory Note (the “Note”) is issued pursuant to the Term Loan Agreement and is entitled to all of the benefits and security of the Term Loan Agreement. All of the terms, covenants and conditions of the Term Loan Agreement and the Loan Documents (as defined in the Term Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Term Loan Agreement.

The rate of interest in effect hereunder shall be calculated with reference to the Section 3, in the Term Loan Agreement. The interest due hereunder shall be computed in the manner provided in the Term Loan Agreement.

The principal and accrued interest on this Note shall be due and payable on the dates and in the manner set forth in the Term Loan Agreement.

Notwithstanding the forgoing, the entire unpaid principal balance and any accrued interest on this Note shall be due and payable immediately upon any acceleration of the indebtedness evidenced by this Note by the Lender pursuant to the Term Loan Agreement or upon any termination of the Term Loan Agreement.

This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2(c) of the Term Loan Agreement. Borrowers may also prepay this Note, in whole or in part, in the manner provided in Section 2(d)of the Term Loan Agreement.

Upon the occurrence of an Default, the Agent and the Lenders shall have all rights and remedies set forth in Section 13 of the Term Loan Agreement and the other Loan Documents.

Time is of the essence with respect to payments due under this Note. To the fullest extent permitted by applicable law, the Borrowers and every endorser and guarantor (if any) of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Agent or any of the Lenders in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Agent or any of the Lenders of any right or remedy preclude any other right or remedy. Agent or any of the Lenders, at their option, may enforce their rights against any collateral securing this Note without enforcing their rights against the Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrowers. The Borrowers agree that, without releasing or impairing Borrowers’ liability hereunder, Agent, for the benefit of the Lenders may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note.

THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESSES SPECIFIED IN ITEM 28 OF THE ADDENDUM TO THE TERM LOAN AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

2

IN WITNESS WHEREOF, the undersigned have executed this Note to be duly executed and delivered by an officer thereunto duly authorized as of the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:  

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:  

Name:

Title:

CENTREPATH, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:  

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:  

Name:

Title:

3

FNS 2007, INC.

By:  

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:  

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL

CAPACITY DIRECT, LLC

By:  

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:  

Name:

Title:

EX-10.10 11 v132473_ex10-10.htm

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (OR SUCCESSOR RULE THERETO) OR (III) UNLESS THE SALE, ASSIGNMENT OR TRANSFER MEETS THE REQUIREMENT OF REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

CAPITAL GROWTH SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:[_____]	Number of Shares: 12,000,000
	Date of Issuance:November ___, 2008

Capital Growth Systems, Inc., a Florida corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ACF CGS, L.L.C., a Delaware limited liability company, the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Twelve Million (12,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the "Warrant Shares") at the Warrant Exercise Price (as defined in Section 1(b) below. Notwithstanding anything to the contrary contained herein, prior to the “Amendment Date” as defined below, this Warrant shall only be exercisable into that number of Warrant Shares that are authorized and reserved for issuance hereunder. For purposes hereof, the “Amendment Date” shall be the first date after the date of this Warrant that the Company files articles of amendment to its articles of incorporation (the “Amendment”) with the Florida Secretary of State increasing its authorized Common Stock to an amount no less than 600,000,000 shares (before giving effect to any forward or reverse split that may occur on or before the date of such filing).

SECTION 1

(a)Loan and Security Agreement. This Warrant was issued pursuant to that certain Loan and Security Agreement, dated as of November__, 2008, by and among the Company, Global Capacity Group, Inc., a Texas corporation (“GCG”), Centrepath, Inc., a Delaware corporation (“Centrepath”), 20/20 Technologies, Inc., a Delaware corporation (“20/20 Inc.”), 20/20 Technologies I, LLC, a Delaware limited liability company (“20/20 LLC”), Nexvu Technologies, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), Magenta Netlogic Limited, a United Kingdom corporation (“Magenta”), Capital Growth Acquisition, Inc., a Delaware corporation (“CG Acquisition”), and Holder (as such agreement may be amended from time to time as provided in such agreement, the "Loan Agreement").

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i)“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which banks in New York, New York are otherwise closed for transacting business with the public.

(ii)"Common Stock" means (i) the Company's common stock, $0.0001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(iii)"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)"Expiration Date" means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(v)"Option" means any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(vi)"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

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(vii)"Principal Market" means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.

(viii)"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Holder, as such agreement may be amended, restated or modified and in effect from time to time.

(ix)"Securities Act" means the Securities Act of 1933, as amended.

(x)"Trading Day" means any day on which the Common Stock is traded on the Principal Market; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(xi)"Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xii)"Warrant Exercise Price" shall be equal to, with respect to any Warrant Share, $0.24, subject to adjustment as hereinafter provided.

(xiii)"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) ("Bloomberg") through its "Volume at Price" functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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SECTION 2. EXERCISE OF WARRANT

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of the Holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the second (2nd) Business Day (the "Warrant Share Delivery Date") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the "Exercise Delivery Documents"), (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC as they would relate to this Warrant, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the "Deemed Issuance Date"), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder's Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder. The Company shall cause at its sole and exclusive expense the investment banking firm to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm's determination or calculation, as the case may be, shall be deemed conclusive absent error.

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(b)If this Warrant is submitted for exercise, as may be required by Section 2(f), and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the "Warrant Delivery Date") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Loan Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall: (i) cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a); or (ii) cash damages accrue in the aggregate to an amount exceeding twelve percent (12%) of the product of the number of shares of Common Stock subject to this Warrant and the original Exercise Price for the Common Stock subject to this Warrant. Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Loan Agreement), 110% of the amount that (A) the Holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.

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(e)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

  B

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being exercised;

B = the arithmetic average of the Weighted Average Price of the Common Stock on each of the five (5) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(f)Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:

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ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

SECTION 3. COVENANTS AS TO COMMON STOCK

The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant; provided, however, that the Company shall effect the Amendment no later than 180 days following the date of this Warrant. Should the Company fail to effect the Amendment within such time period, then the number of shares to be purchased under this warrant shall be increased by 2% for each 30 day period thereafter that the Company fails to effect the Amendment.

(d)If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such securities exchange, or quotation system or market.

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(e)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.0001 per share, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets.

SECTION 4. TAXES

The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

SECTION 5. WARRANT HOLDER NOT DEEMED A SHAREHOLDER

No Holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

SECTION 6. REPRESENTATIONS OF HOLDER

The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.

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SECTION 7. OWNERSHIP AND TRANSFER

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement to the extent provided therein and the initial Holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement.

SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Warrant Date (as defined in Section 12), the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company), for a consideration per share less than a price (the "Applicable Price") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share; provided however, no such adjustment shall be made to the Warrant Exercise Price as a result of any "Exempted Issuance." For purposes hereof, "Exempted Issuance" means any issuance or deemed issuance of shares of Common Stock: (i) pursuant to an Approved Stock Plan, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed the greater of one percent (1.0%) of the number of outstanding shares of Common Stock at the end of the immediately preceding calendar year or the number of shares currently authorized for issuance pursuant to the Company’s 2008 Long Term Incentive Plan; or (ii) that is deemed to constitute an “Exempt Issuance” as that term is defined in the form of Securities Purchase Agreement dated on or about the date of this Warrant calling for the purchase of up to $10,500,000 of convertible debentures with warrants (the proceeds of which are to be used in part for the purchase of the limited liability company interests (“LLC Interests”) of Vanco Direct USA, LLC (the “Sub Debt Purchase Agreement”); (iii) the issuance of the securities subject to the Sub Debt Purchase Agreement or the issuance of securities with respect to a convertible note for up to $4,000,000 that may be issued to the seller of the LLC Interests to the Company; or (iv) that is pursuant to an “Excluded Transaction.” For purposes hereof, the term "Approved Stock Plan" means any employee benefit plan that has been approved by the Board of Directors and stockholders of the Company, pursuant to which shares of Common Stock may be issued solely to consultants, employees, officers and/or directors for services provided to the Company or any of its Subsidiaries (and not, for the avoidance of doubt, for equity capital raising purposes). For purposes hereof, an "Excluded Transaction" shall be any issuance of equity securities of the Company (or warrants, options, convertible rights or other rights to acquire equity securities): (A) to a provider of goods or services to the Company, in connection with an acquisition of a business or assets; or (B) in connection with the outstanding rights of any holder of an option, warrant or convertible security that is issued and outstanding on or before the date of this Warrant; provided that such option, warrant or convertible security is not amended or adjusted after the date of this Warrant to increase the number of securities into which it is convertible, exchangeable or exercisable or to decrease the exercise, exchange or conversion price. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

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(b)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price other than pursuant to an Excluded Transaction or Exempted Issuance), the following shall be applicable:

(i)Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

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(ii)Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed after the date of issuance of this Warrant in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at least as of any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price), the following shall be applicable:

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(i)Calculation of Consideration Received. In case any Options are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the Black-Scholes Value (as defined below) of such Options (the greatest of (I), (II) and (III), the "Option Consideration") and, for purposes of applying the provisions of this Section 8, the Option Consideration shall be allocated pro rata among all the shares of Common Stock issuable upon exercise of such Options to determine the consideration per each such share of Common Stock and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Common Stock represented thereby), less the Option Consideration. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

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(iii)Black-Scholes Value. The "Black-Scholes Value" of any Options shall mean the sum of the amounts resulting from applying the Black-Scholes pricing model to each such Option, which calculation is made with the following inputs: (i) the "option striking price" being equal to the lowest exercise price possible under the terms of such Option on the date of the issuance of such Option (the "Valuation Date"), (ii) the "interest rate" being equal to the Federal Reserve US H.15 T Note Treasury Constant Maturity 1 Year rate on the Valuation Date (as reported by Bloomberg through its "ALLX H15T" function (accessed by typing "ALLX H15T" [GO] on a Bloomberg terminal, and inserting the date of the Valuation Date and then looking at the row entitled "Treas Const Mat 1 Year" under the column entitled "Previous Value")), or if such rate is not available then such other similar rate as mutually agreed to by the Company and the Holder, (iii) the "time until option expiration" being the time from the Valuation Date until the expiration date of such Option, (iv) the "current stock price" being equal to the Weighted Average Price of the Common Stock on the Valuation Date, (v) the "volatility" being the 100-day historical volatility of the Common Stock as of the Valuation Date (as reported by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to zero. Within three (3) Business Days after the Valuation Date, each of the Company and the Holder shall deliver to the other a written calculation of its determination of the Black-Scholes Value of the Options. If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes Value of the Options within five (5) Business Days of the Valuation Date, then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Valuation Date. The Company shall cause such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after the Valuation Date. Such investment banking firm's calculation of the Black-Scholes Value of the Options shall be deemed conclusive absent error. The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

(d)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case:

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(i)the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the Holder shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the amount of the assets that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

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(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE

(a)In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder, without regard to any limitation on exercise thereof) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

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SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT

If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

SECTION 11. NOTICE

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company: Capital Growth Systems, Inc.

500 W. Madison - Suite 2060

Chicago, Illinois 60661

Attention: Chief Executive Officer

Facsimile: (312) 673-2422

with a copy to: Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Attention: Mitchell D. Goldsmith

Facsimile: (312) 527-3194

If to Holder: ACF CGS, L.L.C.

c/o Archer Capital Management

570 Lexington Avenue - 40^th Floor

NY, NY 10022

Attention: Gary Katz

Facsimile: 212-319-1033

With a copy to: Jeffrey H. Wolf, Esq.

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Facsimile No.: (310) 310-6001

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

-16-

SECTION 12. DATE

The date of issuance of this Warrant is the date first set forth above (the "Warrant Date"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

SECTION 13. AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW

The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York.

SECTION 15. RULES OF CONSTRUCTION

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) each accounting term not otherwise defined in this Warrant has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word "including" in this Warrant shall be by way of example rather than limitation.

-17-

SECTION 16. NO EFFECT UPON LENDING RELATIONSHIP

Anything herein contained to the contrary notwithstanding, nothing contained in this Warrant shall affect, limit or impair the rights and remedies of Holder, any of its affiliates, or its successors and transferees, or any other lender in their respective capacities as lenders to the Company or any of its Subsidiaries (each, a "Subject Person") pursuant to any agreement under which the Company or any of its subsidiaries has borrowed money. Without limiting the generality of the foregoing, no Subject Person, in exercising its rights as a lender, shall have any duty to consider (i) its status as a direct or indirect shareholder or other equityholder of the Company, (ii) the interests of the Company or any of its subsidiaries, or (iii) any duty it may have to any other direct or indirect shareholder or other equityholder of the Company, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of __________, 2008.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

-19-

EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THIS WARRANT

CAPITAL GROWTH SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.Form of Warrant Exercise Price. The holder intends that payment of the Warrant Exercise Price shall be made as:

____________a "Cash Exercise" with respect to ___________________ Warrant

Shares; and/or

____________a "Cashless Exercise" with respect to ______________ Warrant

Shares (to the extent permitted by the terms of the Warrant).

2.Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number (if electronic book entry transfer):

Date:

 Name of Registered Holder

 By:

 Name:

 Title:

A-1

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock & Transfer Company or the currently existing transfer agent if other than such entity ("Transfer Agent") to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by Transfer Agent.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Capital Growth Systems, Inc., a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated: ____________________, 200___

 Name:

 Title:

B-1

EX-10.11 12 v132473_ex10-11.htm

Exhibit 10.11

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November ____, 2008 between Capital Growth Systems, Inc., a Florida corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Administrator” means Vanco plc (in administration).

“Administrator Debenture” means the debenture in the form of Exhibit A-1 hereto, issuable to the administrator pursuant to the terms of the ILPA (as defined below) in the original principal amount of $3,000,000.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Archer Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and the Archer Purchasers in the form of Exhibit H-1 attached hereto

“Archer Purchasers” means the purchasers of the securities issued pursuant to the Loan and Security Agreement dated as of the date hereof by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Loan Agreement”).

“Authorized Share Approval” means (i) the vote by the stockholders of the Company to approve an amendment to the Company’s articles or certificate of incorporation that increases the number of authorized shares of Common Stock to at least 600,000,000 shares of Common Stock (the “Amendment”) and (ii) the filing by the Company of the Amendment with the Secretary of State of the State of Florida and the acceptance of the Amendment by the Secretary of State of the State of Florida.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

“Closing Statement” means the Closing Statement in the form Annex A attached hereto.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive Common Stock.

“Company Counsel” means Shefsky & Froelich, with offices located at 111 E. Wacker Drive, Suite 2800, Chicago, Illinois 60601.

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures” means the Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

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“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).

“Effective Date” means the earlier of (a) the effective date of a Registration Statement and (b) the date that all of Underlying Shares issuable pursuant to the Transaction Documents may be sold or are eligible for sale under Rule 144, without volume or manner-of-sale restrictions.

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder (including but not limited to any issuance of Common Stock with respect to the redemption of the Debentures and the debentures issued pursuant to the March Purchase Agreement or payment of any liquidated damages with respect to the Debentures, the Warrants and this Agreement and the debentures and warrants issued pursuant to the March Purchase Agreement) and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) for purposes of Section 4.12 only, an issuance of Common Stock or Common Stock Equivalents, without registration rights, for cash consideration, to the global carrier referenced in the Company’s press release dated February 20, 2008, provided, however, any such issuance of Common Stock Equivalents shall be expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (e) for purposes of Sections 4.12 and 4.13 only, securities (including shares of Common Stock, warrants and Common Stock Equivalents) issued in connection with the Archer Loan Agreement the terms of which are described in the Disclosure Schedules hereto and the Administrator Debenture.

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“FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“March Purchase Agreement” means the Securities Purchase Agreement, dated March 11, 2008, by and among the Company and each of the purchasers signatories thereto for the issuance of debentures and warrants.

“March Purchasers” means the purchasers of the securities issued pursuant to the March Purchase Agreement and any successors in interest to any of the debentures and warrants issued pursuant to the March Purchase Agreement (by way of assignment or cancellation and reissuance of the same).

“March Purchasers Intercreditor Agreement” means the intercreditor agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and each of the March Purchasers in the form of Exhibit H-2 attached hereto

“March Registration Rights Agreement” means the Registration Rights Agreement, dated March 11, 2008, by and among the Company and each of the March Purchasers.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

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“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.65.

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

“Registration Statement” means a registration statement filed pursuant to Section 4.18, registering the resale, by the Purchasers, of all of the Underlying Shares, or any portion thereof.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit E attached hereto.

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“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees, the Intercreditor Agreement, and any other documents and filing required thereunder in order to grant the Purchasers a security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds or, with respect to (i) Aequitas Catalyst Fund, LLC - Series C (“Aequitas”), through the conversion of its bridge note dated September 29, 2008, in the original principal amount of $500,000 (the “Aequitas Note”) to a debenture and warrant hereunder and (ii) Capstone Investments (“Capstone”), through the irrevocable waiver of its right to all or a portion of its cash fee of 7% of the cash proceeds hereunder and under the Archer Loan Agreement.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F attached hereto.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

6

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Security Agreement, the Subsidiary Guarantee, the Archer Intercreditor Agreement, the March Purchasers Intercreditor Agreement, the Voting Agreement, the Consent, Waiver and Amendment Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current transfer agent of the Company with a mailing address of 17 Battery Place, New York, New York 10004 and a facsimile number of 212-509-5150, and any successor transfer agent of the Company.

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures.

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

“Voting Agreement” means the written agreement, in the form of Exhibit G attached hereto, of all of the officers, directors, and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favor of the Authorized Share Approval, amounting to, in the aggregate, at least 50.1% of the issued and outstanding Common Stock.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years from the date of the Authorized Share Approval, in the form of Exhibit C attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to $17,325,000, in the aggregate, in principal amount of the Debentures (with an aggregate Subscription Amount of up to $10,500,000). Each Purchaser shall deliver to the Company via wire transfer or a certified check, immediately available funds equal to its cash Subscription Amount (and, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement) and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the parties shall mutually agree.

2.2Deliveries.

(a)On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii)a legal opinion of Company Counsel, in substantially the form of Exhibit D attached hereto;

(iii)a Debenture with a principal amount equal to such Purchaser’s Subscription Amount multiplied by 1.65, registered in the name of such Purchaser;

(iv)the Voting Agreements, duly executed by all officers, directors and 10% stockholders of the Company;

(v)a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 75% of such Purchaser’s Subscription Amount divided by $0.24, with an exercise price equal to $0.24, subject to adjustment therein;

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(vi)the Security Agreement, duly executed by the Company, VDUL (as defined below) and each Subsidiary, along with all of the Security Documents (including, without limitation, documents and agreements evidencing the Purchasers’ security interest in the assets of the Company’s Subsidiary that is organized in the UK), including the Subsidiary Guarantee, duly executed by the parties thereto;

(vii)the Archer Intercreditor Agreement, duly executed by the Company and the Archer Purchasers; and

(viii)the March Purchasers Intercreditor Agreement, duly executed by the Company and each of the March Purchasers.

(b)On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s cash Subscription Amount by wire transfer to the account as specified in writing by the Company (or, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement);

(iii)the Security Agreement duly executed by such Purchaser;

(iv)the Archer Intercreditor Agreement duly executed by such Purchaser; and

(v)the March Purchasers Intercreditor Agreement duly executed by such Purchaser.

2.3Closing Conditions.

(a)The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

(iii)the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

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(b)The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii)the delivery of a lock-up agreement, in the form attached hereto as Exhibit J, duly executed by each of the Administrator and Capstone, the Company and the Transfer Agent;

(iv)all existing debtholders of the Company and its Subsidiaries, with the exception of the Excepted Debtholders, as that term is defined herein (each, an “Existing Debtholder” and together, the “Existing Debtholders”), shall each have executed and delivered to the Purchasers an agreement whereby each Existing Debtholder shall agree, that all amounts owed to it shall not mature or require payments of any nature prior to the repayment of all amounts due under the Debentures, and whereby such indebtedness is made expressly subordinate in right of payment to the indebtedness evidenced by the Debentures, as reflected in a written agreement reasonably acceptable to, and approved by, the Purchasers. The term the Excepted Debtholders includes the March Purchasers, the Archer Purchasers and such other debtholders described on Schedule 2.3(b)(iii)attached hereto (together, the “Excepted Debtholders”);

(v)the delivery of a consent, waiver and amendment agreement, in the form attached hereto as Exhibit I duly executed by each March Purchaser (the “Consent, Waiver and Amendment Agreement”);

(vi)the Interest and Loan Purchase Agreement (“ILPA”) among Capital Growth Acquisition, Inc. (“Acquisition”), Vanco Direct USA, LLC (“VDUL”) and the Administrators for the estate of Vanco, plc (“Administrators”) shall have been duly executed on terms and conditions described in the Disclosure Schedules hereto, and the transactions consummated thereunder shall have been consummated subject only to the conveyance of the VDUL limited liability company interest, which shall be subject only to certain post-closing state regulatory filings described on Schedule 3.1(m)(A) hereto or the passage of time as further described on the Disclosure Schedules hereto;

(vii)the closing of the Archer Loan Agreement, with gross proceeds of not less than $8,500,000 to the Company and its Affiliates, shall have been consummated prior to or contemporaneous with the Closing hereunder on terms and conditions described in the Disclosure Schedules (provided, the aggregate principal amount of the Senior Debt shall not exceed $10,500,000), and the Company shall have delivered evidence thereof to the Purchasers;

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(viii)there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

(ix)from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

(a)Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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(c)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(d)No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents and the consummation by it to which it is a party of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) the filings set forth in Schedule 3.1(e) required under the ILPA to obtain necessary FCC and state commerce commission approvals to the change in control of VDUL (collectively, the “Required Approvals”).

(f)Issuance of the Securities. The Securities (other than the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Subject only to the Authorized Share Approval, the Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

(g)Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act or as reflected on Schedule 3.1(g). Except as set forth on Schedule 3.1(g)(i), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g)(ii), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth on Schedule 3.1(g)(iii), no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as described on Schedule 3.1(h), the Company has never been an issuer subject to Rule 144(i) under the Securities Act. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Material Changes. Other than as set forth on Schedule 3.1(i), since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice or in connection with the transaction contemplated by this Agreement and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement and the other transactions contemplated by the Transaction Documents or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

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(j)Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as set forth on Schedule 3.1(j). There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(k)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. Except as disclosed on Schedule 3.1(k), the Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(l)Compliance. Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(m)Regulatory Permits. Except as disclosed on Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n)Title to Assets. Except for the liens set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

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(o)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(p)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in the amount of $10.0 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q)Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

(r)Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on Schedule 3.1(r), the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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(s)Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, except as set forth on Schedule 3.1(s). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(t)Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

(v)Registration Rights. Other than the persons specified on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

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(w)Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(x)Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(y)Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Archer Loan Agreement and the ILPA, the material terms of which are set forth on Schedule 3.1(y) (all of which shall be publicly disclosed contemporaneous with the disclosure of this Agreement as required by Section 4.6), the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

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(z)No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(aa)Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the projected cash flow of the Company from its future operations, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

(bb)Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

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(cc)No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(dd)Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ee)Accountants. The Company’s present accounting firm is Plante Moran. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act. The Company has advised that it is in the process of retaining a new accounting firm. The Company warrants that it shall retain a new accounting firm duly registered as a public accounting firm as required by the Exchange Act and that such new firm shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending December 31, 2008.

(ff)Seniority. Except for the Senior Debt, as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby), or as otherwise set forth on Schedule 3.1(ff).

(gg)No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and except as noted in Schedule 3.1(gg), the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

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(hh)Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(ii)Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

(jj)Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

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3.2Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)Organization; Authority. Such Purchaser if an entity, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which a Purchaser is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Notwithstanding the foregoing, Midsummer Investment Ltd. (“Midsummer”) has been approached by an institutional accredited investor that was introduced to Midsummer by the placement agent for this transaction (the “Potential Purchaser”) about purchasing a portion of its Securities purchased hereunder after the Closing in a private transaction.  Midsummer represents there are no present understandings or agreements to transfer any of its Securities to such Potential Purchaser, however, any such transfer otherwise in accordance with the provisions of Section 4.1(a) hereof shall in no way be deemed a breach of Midsummer’s representations and warranties hereunder or under any other Transaction Document.

(c)Purchaser Status. At the time such Purchaser was offered the Securities, such Purchaser was, and as of the date hereof such Purchaser is, and on each date on which such Purchaser exercises any Warrants or converts any Debentures such Purchaser will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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(d)Experience of Such Purchaser. Such Purchaser, either alone or together with his or its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

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(a)The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities , including, if the Securities are subject to registration pursuant to Section 4.18, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

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(c)Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including a Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if promptly after the Effective Date required by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144, without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)(i)In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the second Trading Day following the Legend Removal Date (the “Legend Removal Deadline”) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

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(ii)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.1(d)(i) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.1(d)(i) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Legend Removal Deadline, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(e)Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

4.2Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information; Public Information.

(a)If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60^th calendar day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. Upon a cashless exercise of the Warrant, the holding period for purpose of Rule 144 shall tack back to the original date of issuance of such Warrants.

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(b)At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(c)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.3(b) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.3(b) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Public Information Failure, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

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4.4Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5Conversion and Exercise Procedures. Each of the Purchasers agrees the he/she/it will not convert their Debenture or exercise their Warrant until such time as the Authorized Share Approval has occurred. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debenturesset forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.6Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with (i) any registration statement contemplated by Section 4.18 of this Agreement and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.7Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

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4.8Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

4.9Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.

4.10Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

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4.11Reservation and Listing of Securities.

(a)Following the Authorized Share Approval, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents at least equal to the Required Minimum as of such date.

(b)If, on any date after the date of the Authorized Share Approval, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

(c)The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing and (iv) maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

(d)In addition, the Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date following the date hereof, and in any event within 75 calendar days following the Closing Date, for the purpose of obtaining the Authorized Share Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. In addition, the Company agrees to use its best efforts to promptly respond to any comments the Commission may have with respect to any preliminary proxy statement. If the Company does not obtain the Authorized Share Approval at the first meeting, the Company shall call a meeting every 30 days thereafter to seek Authorized Share Approval until the earlier of the date the Authorized Share Approval is obtained or the Debentures and Warrants are no longer outstanding.

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4.12Participation in Future Financing.

(a)Other than the Senior Debt, from the date hereof until the date that the Debentures are no longer outstanding, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a combination of units hereof) (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

(b)At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

(c)Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5^th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

(d)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Participation Maximum, Company may effect the remaining portion of the Participation Maximum of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

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(e)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

(f)The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 Trading Days after the date of the initial Subsequent Financing Notice.

(g)Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

4.13Subsequent Equity Sales.

(a)From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, a Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

(b)From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

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(c)Unless and until the Authorized Share Approval is obtained, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents. So long as the Debentures or Warrants are outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $0.24 (subject to adjustment for forward and reverse stock splits, stock dividends and combinations and similar transactions affecting the Common Stock after the Closing Date). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(d)Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

4.14Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.15Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will execute any Short Sales during the period commencing with the Discussion Time and ending at such time the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6; provided, however, each Purchaser agrees, severally and not jointly with any other Purchasers, that they will not enter into any Net Short Sales (as hereinafter defined) from the period commencing on the Closing Date and ending on the date that is the earlier of (x) the 6-month anniversary of the Closing Date or (y) the date that such Purchaser no longer holds any Debentures.  For purposes of this Section 4.15, a “Net Short Sale” by any Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by such Purchaser.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by the Purchaser, Underlying Shares that have not yet been converted pursuant to the Debentures and Warrant Shares that have not yet been exercised pursuant to the Warrants shall be deemed to be held long by the Purchaser, and the amount of shares of Common Stock held in a long position shall be all unconvertedUnderlying Sharesand unexercised Warrant Shares (ignoring any exercise limitations included therein) issuable to such Purchaser on such date, plus any shares of Common Stock or other Common Stock Equivalents (other than the unconverted Underlying Shares and unexercised Warrant Shares described in this sentence) otherwise then held by such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

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4.16Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

4.17Capital Changes. Until the one year anniversary of the Effective Date, other than in connection with a Permitted Reverse Stock Split (as defined below), the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of the Common Stock that is approved on or before April 15, 2009 for purposes of satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and is effective contemporaneous with, or immediately prior to, the approval of the Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

4.18Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then, subject to SEC Guidance (as defined in the March Registration Rights Agreement) the Company shall send a written notice of such determination to each Purchaser and, if within

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ten calendar days after the date of delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such Registration Statement all or any part of the Underlying Shares as the Purchaser requests to be registered so long as such Underlying Shares are proposed to be disposed of in the same manner as those securities set forth in the Registration Statement, subject to pro rata cutback of the Purchasers (based upon the respective amounts of their Underlying Shares that are proposed for registration) and all other security holders proposed to be included in such Registration Statement, to the extent that all of the shares proposed for registration shall not be permitted due to SEC Guidance with respect to Rule 415. The Company shall use its best efforts to cause any Registration Statement to be declared effective by the Commission as promptly as is possible following it being filed with the Commission and to remain effective until all Underlying Shares subject thereto have been sold. All fees and expenses incident to the performance of or compliance with this Section 4.18 by the Company shall be borne by the Company whether or not any Underlying Shares are sold pursuant to the Registration Statement. The Company shall indemnify and hold harmless the Purchasers, the officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them, each person who controls the Purchasers (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the officers, directors, members, shareholders, partners, agents and employees of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any prospectus included therein or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 4.18, except to the extent, but only to the extent, that such untrue statements or omissions referred to in (i) above are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser’s proposed method of distribution of Underlying Shares and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto. The rights of the Purchasers under this Section 4.18 shall survive until all Underlying Shares have been either registered under a Registration Statement or been sold pursuant to an exemption to the registration requirements of the Securities Act.

4.19Removal of Subordination Legend. Following the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), within 3 Business Days of a written request from any Purchaser, the Company hereby agrees to issue such Purchaser a replacement Debenture, without the restrictive legend referencing the Archer Intercreditor Agreement, and otherwise in the same form of such Purchaser’s Debenture.

4.20Certain Permitted Payments under the Archer Intercreditor Agreement. In connection with “Permitted Payments” (as defined in the Archer Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder,no less than ten (10) days prior to the due date of such Quarterly Redemption Amounts (as defined in the Debentures) as described in such Section, the Company agrees to deliver each Purchaser a written certification of compliance with the financial covenants under the Archer Loan Agreement for the month prior to the date such Quarterly Redemption Amount is due, and, if requested in writing by a Purchaser and subject to Section 4.8 hereunder, calculations in reasonable detail evidencing compliance with such financial covenants.

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4.21Other Agreement(s). From the date hereof until the two year anniversary of the Closing Date, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents to Patrick Shutt, George King or Robert Pollan, or any of their respective Affiliates. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 21, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse Midsummer Capital, LLC (“Midsummer”) the non-accountable sum of $75,000 for its legal fees and expenses, $25,000 of which has been paid prior to the Closing. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

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5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

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5.10Survival. The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice.

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5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

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5.18Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FWS. FWS does not represent all of the Purchasers but only Midsummer. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

5.19Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.21Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

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5.22WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

CAPITAL GROWTH SYSTEMS, INC.	Address for Notice: Attention Chief Executive Officer 500 W. Madison St., Suite 2060 Chicago, Illinois 60661 Facsimile: 312-673-2422
By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice):
Shefsky & Froelich Ltd. 111 E. Wacker Dr., Suite 2800 Chicago, Illinois 60601 Facsimile: 312-275-7569

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO CGSY SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Principal Amount (Subscription Amount multiplied by 1.65): _____________

Warrant Shares: _________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

EX-10.12 13 v132473_ex10-12.htm

Exhibit 10.12

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENTS (AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November ___, 2008

Original Conversion Price (subject to adjustment herein): $0.24

$_______________

ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on the seven year anniversary of the Original Issue Date (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

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“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

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“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued and unpaid default interest.

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“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture issued to the Administrator, and (f) Magenta employee notes in the amount of approximately $87,000.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

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“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

“Quarterly Redemption Notice” shall have the meaning set forth in Section 6(a) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

¹ A*B-A/23, where A = the initial Subscription Amount and B = 1.65.

¹ A*B-A

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Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Authorized Share Approval until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)[Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.] [SECTION 4(c) TO BE REPLACED BY “[RESERVED]” WITH RESPECT TO AEQUITAS AND DAVID L.]]

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

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ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. After the Authorized Share Approval, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”).

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The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and, if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the March Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the March Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

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Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exists or occurs;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

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Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

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b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November___, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title
Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due November ___, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:  

Account No:  

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on November ___, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.13 14 v132473_ex10-13.htm

Exhibit 10.13

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Authorized Share Approvaldate (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the date the Authorized Share Approval is received and effective (the “Termination Date”) but not thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a Florida corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the date the Authorized Share Approval has been received and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

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b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise. If at any time after the earlier of (i) the six month anniversary of the date of the Purchase Agreement and (ii) the completion of the then-applicable holding period required by Rule 144, or any successor provision then in effect, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant until the Authorized Share Approval Date.The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. [This Section 2(d) to be replaced in Aequitas Warrant with “[RESERVED]”]

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e)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the seventh Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

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c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

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Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants that after the Authorized Share Approval is received, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders holding Warrants at least equal to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

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16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

22

(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

23

(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

24

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

26

[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

S1-1

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

S1-2

(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

S1-3

(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

S1-4

(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

2

3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

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4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

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[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

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EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

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(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

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EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.7

Exhibit 10.7

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: March 11, 2008

$__________________

AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE MARCH 11, 2015

THIS AMENDED AND RESTATED ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE AMENDING AND RESTATING THE DEBENTURE ORIGINALLY ISSUED 3/11/08 is one of a series of duly authorized and validly issued Amended and Restated Original Issue Discount Secured Convertible Debentures Amending and Restating Debenture Originally Issued 3/11/08 of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Amended and Restated Original Issue Discount Secured Convertible Debenture Amending And Restating Debenture Originally Issued 3/11/08, due on the day immediately preceding the first anniversary of this Debenture, as that term is defined herein (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will terminate on March 11, 2015 (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”). This Debenture is being issued in substitution for and not in satisfaction of that certain Variable Rate Secured Convertible Debenture issued to the Holder on March 11, 2008. Pursuant to Rule 144, the holding period of this Debenture, the Conversion Shares issuable upon conversion and redemption hereof shall tack back to March 11, 2008.This Debenture shall not constitute a novation or satisfaction and accord of such Variable Rate Secured Convertible Debenture.

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FOR VALUE RECEIVED, the Company promises to pay to _____________, or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $__________,on the later to occur of the Termination Date or the Extended Termination Date, as applicable, (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder and to pay default interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Archer Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of November ___, 2008, duly executed by the Company, the Archer Purchasers, each of the Holders and the other investors signatory thereto.

“Archer Loan Agreement” means that certain Loan and Security Agreement dated as of November ___, 2008 by and among the Company and its Subsidiaries and ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the senior lenders under the Archer Loan Agreement (the “Archer Purchasers”).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

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“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

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“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds 300,000 shares per Trading Day (subject to forward and reverse stock splits, stock dividends, stock combinations, recapitalizations and other similar transactions of the Common Stock that occur after the Original Issue Date).

4

“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Holders” means the holders of the amended and restated debentures that have been exchanged for the original debentures (or substitutes thereof) issued pursuant to the Purchase Agreement dated March 11, 2008 between the Company and purchasers of $19,000,000 of debentures issued thereunder.

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including without limitation, any accrued and unpaid default interest.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“November Debentures” means the debentures issued pursuant to the November Purchase Agreement.

“November Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture (as defined in the November Purchase Agreement) issued to the Administrator (as defined in the November Purchase Agreement), and (f) Magenta employee notes in the amount of approximately $87,000.

5

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 11, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $____________ plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $_________.

“Quarterly Redemption Date” means January 1, April 1, July 1 and October, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

6

“Quarterly Redemption Notice” shall have the meaning set forth in Section [6(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

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Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid default interest thereon, if any, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the six month anniversary of the Original Issue Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(d) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

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iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment for liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. As of November ___, 2008, the Company has reserved 3,049,358 shares of Common Stock for issuance upon conversion this Debenture. After the Authorized Share Approval (as defined in the November Purchase Agreement), the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

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a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock duringsuch 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption, provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date). The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quarterly Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; and (iii) redemptions as permitted under the November Debentures or the Debentures;

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e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures or November Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default (or with respect to the November Debentures with respect to any event of default thereunder) exist or occur;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest payment or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

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iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, provided however that the failure of Vanco Direct USA, LLC (“VDUL”) to obtain consent to either the change in control of VDUL by the Company or of any sublease of any of its space from VDUL’s sublessor, or the sublessor or lessor senior to its sublessor or lessor senior to it sublessor with respect to space in ins lease of 200 West Wacker, Chicago, Illinois, shall not be deeded to constitute a breach of the Purchase Agreement;

vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

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x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4, or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Subject to the Archer Intercreditor Agreement, accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

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b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

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e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

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h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of March 11, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due March 11, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of Shares of Common Stock to be Issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of

Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                       

Account No:                   

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on March 11, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.8 9 v132473_ex10-8.htm

Exhibit 10.8

TERM LOAN AND SECURITY AGREEMENT

Dated as of November ____, 2008

Among

CAPITAL GROWTH SYSTEMS, INC.,

GLOBAL CAPACITY GROUP, INC.,

CENTREPATH, INC.,

20/20 TECHNOLOGIES, INC.,

20/20 TECHNOLOGIES I, LLC,

NEXVU TECHNOLOGIES, LLC,

FNS 2007, INC.,

MAGENTA NETLOGIC LIMITED,

CAPITAL GROWTH ACQUISITION, INC., and

VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC

(as Borrowers),

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

(as Lenders),

and

ACF CGS, L.L.C.

(as Agent)

TABLE OF CONTENTS

		Page
1.	Definitions	2
2.	Borrowing	14
3.	Interest and Fees	20
4.	Representations and Warranties of Borrowers	21
5.	Collateral	25
6.	Financial Covenants	26
7.	Collateral Covenants	26
8.	Negative Covenants	30
9.	Reporting and Information	32
10.	Inspection Rights; Expenses; Etc.	33
11.	Rights of Setoff, Application of Payments, Etc.	34
12.	Attorney-in-Fact	34
13.	Defaults and Remedies	35
14.	Indemnification	38
14.	Indemnification	43
15.	General Provisions	44

Attachments:

Addendum

Exhibit A - Lender and Lenders’ Commitment

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Term Note

Exhibit D - Employment Agreements

TERM LOAN AND SECURITY AGREEMENT

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the ___ day of September, 2008 among CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a Global Capacity Direct, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein individually as a “Borrower” and collectively as the “Borrowers”), the lenders from time to time party hereto (each a “Lender” and collectively, the “Lenders”) and ACF CGS, L.L.C., a Delaware limited liability company, as agent for the Lenders (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a secured term loan and Lenders are willing to provide a secured term loan to Borrowers on the terms set forth herein, which secured term loan Borrowers will use for the purposes permitted hereunder; and

WHEREAS, Borrowers’ business is a mutual and collective enterprise and Borrowers believe that the consolidation of the secured term loan and other financial accommodations under this Agreement will enhance the aggregate borrowing powers of Borrowers and facilitate the administration of their loan relationship with Agent and each of the Lenders, all to the mutual advantage of Borrowers; and

WHEREAS, each Borrower acknowledges that it will receive substantial direct and indirect benefits by reason of the making of the secured term loan and other financial accommodations to Borrowers as provided in this Agreement, by virtue of Borrowers’ various inter-relationships as joint guarantors or joint obligors and the beneficiaries thereof, as lessors and lessees, as suppliers and customers, and as joint venturers; and

WHEREAS, Lender’s willingness to extend financial accommodations to Borrowers, and to administer Borrowers’ collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers’ request and in furtherance of Borrowers’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions. For purposes of this Agreement:

“20/20 Inc. Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 Inc. in favor of the Agent, on behalf if itself and the Lenders, with respect to its Stock in 20/20 LLC.

“20/20 LLC Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 LLC in favor of the Agent, on behalf of itself and the Lenders, with respect to its Stock in Magenta.

“Accounts” means all presently existing or hereafter arising accounts receivable due each Borrower (including medical and health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to each Borrower, whether or not arising from the sale or lease of goods or the rendition of services by such Borrower (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of each Borrower’s rights in, to and under all purchase orders now or hereafter received by such Borrower for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to each Borrower under all contracts for the sale or lease of goods or the rendition of services by such Borrower (whether or not yet earned) (including the right to receive the proceeds of said purchase orders and contracts), all amounts payable to each Borrower under any insurance policy, all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by each Borrower that correspond to any of the foregoing.

“Account Control Agreements” shall mean collectively, the Private Bank Account Control Agreement and the HSBC Account Control Agreement.

“Acquisition” means the acquisition by CG Acquisition of 100% of the membership interests of Vanco pursuant to the Acquisition Documents.

“Acquisition Documents” means the Interest Purchase Agreement and the Management Services Agreement, together with all other agreements, instruments, opinions of counsel and other documents executed and/or delivered in connection with the Acquisition.

“Addendum” means the Addendum to Term Loan and Security Agreement attached hereto, as the same may be amended and in effect from time to time.

“Adjusted Working Capital” means the remainder of (a) the consolidated current assets of the Borrowers minus the amount of cash and cash equivalents included in such consolidated current assets, minus (b) the consolidated current liabilities of the Borrowers minus the amount of consolidated short-term Indebtedness (including current maturities of long-term Indebtedness) of the Borrowers included in such consolidated current liabilities.

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“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agent” has the meaning set forth in the preamble hereto.

“Agent Advances” has the meaning specified therefor in Section 14(h).

“Agreement Date” means the date as of which this Agreement is dated.

“Annualized EBITDA” shall mean the trailing period EBITDA annualized to twelve (12) months.

“Applicable Authorization States” means the states of Arizona, Delaware, Georgia, Indiana, Pennsylvania, Tennessee and West Virginia.

“Applicable Margin” means the rate of interest to be paid on the unpaid principal amount of the Term Note from and after the Agreement Date. For the period from and after the Agreement Date, the Applicable Margin shall be 14% per annum payable monthly, of which 9% shall be paid in cash, and 5% shall be capitalized, compounded and added to the unpaid principal amount of the Term Note monthly (whereupon from and after such date such additional amounts shall also accrue interest) (such interest, “PIK Interest”).

“Applicable Rate” means a rate equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in form approved by the Agent.

“Borrowers’ Agent” means Parent, in its capacity as agent for itself and the other Borrowers pursuant to Section 2(j).

“Borrower Asset Sales” has the meaning set forth in Section 2(c)(i).

“BT Receivable” means those certain receivables related to Magenta invoices OPT-20080807-1 and OPT-20080331-2 as defined in the BT Receivables Agreement.

“BT Receivables Agreement” means that certain Second Amendment to British Telecommunications and Magenta netLogic Ltd. Camera Agreement 10693 dated September 30, 2008.

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“BT Receivable Payment” means any cash received by a Borrower with respect to the BT Receivable.

“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent is otherwise closed for transacting business with the public.

“Capitalized Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligations” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Balance” means, at any time, unrestricted cash and cash equivalents of Borrowers, on deposit with (i) the Depository Bank and subject to the Private Bank Account Control Agreement, and (ii) HSBC USA, National Association and subject to the HSBC Account Control Agreement.

“CG Acquisition Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by CG Acquisition in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Vanco.

“Collateral” has the meaning set forth in Section 5(a).

“Commitment” means with respect to each Lender, the commitment of such Lender to make the Term Loan to the Borrowers in the amount set forth in Exhibit A hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement.

“Credit Party” means each Borrower, any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, or any other Person which has granted a Lien on any assets of such Person as collateral for any of the Obligations, and “Credit Parties” means all of the foregoing Persons collectively.

“Customer” means any customer of any Borrower.

“Debenture Documents” means the Debenture Purchase Agreements and all debentures, security agreements, guarantees and other agreements executed and/or delivered in connection with the Debenture Indebtedness.

“Debenture Indebtedness” means Indebtedness of Parent (which is guaranteed by certain other Borrowers) evidenced by the debentures issued pursuant to the Debenture Purchase Agreements, as described in Item 9 of the Addendum.

“Debenture Intercreditor Agreement” means that certain Debt Subordination and Intercreditor Agreement dated on or about the Agreement Date among Agent, for the benefit of the Agent and the Lenders, and the Debenture Purchasers.

4

“Debenture Purchasers” means the Purchasers under and as defined in the Debenture Purchase Agreements and any successor holders of Debenture Indebtedness permitted under the Debenture Intercreditor Agreement.

“Debenture Purchase Agreements” mean each of: (a) that certain Securities Purchase Agreement dated as of March 11, 2008, among Parent and the Debenture Purchasers party thereto, as modified and amended pursuant to that certain Consent, Waiver, Amendment and Exchange Agreement dated on or about the Agreement Date, pursuant to which Parent agrees to issue debentures to such Debenture Purchasers to cover the outstanding interest payable for the remainder of the terms of their original debentures and to cover the remaining penalties associated with failure to meet the maximum negotiated obligations pursuant to the Registration Rights Agreement between Parent and such Debenture Purchasers; (b) that certain Note Purchase Agreement dated as of September 25, 2008, between Parent and Aequitas Catalyst Fund, LLC –Series B; (c) that certain Securities Purchase Agreement dated on or about the Agreement Date among Parent and the Debenture Purchasers party thereto; and (d) the Interest Purchase Agreement to the extent the same provides, for the issuance of a debenture to the Administrator in the original principal amount of $4,000,000.

“Depository Bank” shall mean The Private Bank and Trust Company, its successors and assigns, in its capacity as the provider of cash management services to the Borrowers.

“Default” has the meaning set forth in Section 13(a).

“EBITDA” means for Borrowers on a consolidated basis, net income (excluding non-recurring gains and extraordinary gains) before provision for interest expense, taxes, depreciation, amortization, and financing and transaction fees relating to the initial closing of this Agreement and the Acquisition ,determined in accordance with GAAP, and excluding, in any event, any non-cash impact on income or loss from application of variable accounting rules or requirements, and any expenses associated with original issue discounts and Stock based compensation.

“Employment Agreements” means, collectively, the Employment Agreements between Parent and each of (i) Patrick C. Shutt, (ii) George A. King, (iii) Robert A. Pollan, (iv) Jim McDevitt, and (v) Chris Conant, each as attached hereto as Exhibit D.

“Equipment” means all of each Borrower’s machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.

“Excess Cash Flow” means, with respect to any fiscal period for the Borrowers on a consolidated basis determined in accordance with GAAP, (a) EBITDA, plus (b) any net decrease (or minus any net increase) in Adjusted Working Capital during such period, minus (c) the sum of (i) the cash portion of interest actually paid during such period, (ii) the cash portion of income taxes paid during such period, (iii) all principal payments made in cash with respect of the Term Loan (if any), and (iv) the cash portion of capital expenditures made during such period and in accordance with Item 21 of the Addendum.

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“Excluded Equipment” means the Equipment owned by any Borrower or Vanco, as the case may be, and used in connection with the delivery of telecommunications services as part of the respective business operations of any Borrower or Vanco within the Applicable Authorization States.

“Extraordinary Receipts” means any cash received by a Borrower with respect to (a) federal and state tax refunds (but only to the extent such state tax refunds exceed $25,000, in the aggregate in any fiscal year), (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance and, unless Agent provides its prior written consent otherwise, business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, including without limitation, awards or settlements in respect of condemnation and eminent domain proceedings, (e) indemnity payments, (f) any purchase price adjustment received in connection with any purchase agreement (other than relating to ordinary purchases of goods and services in the ordinary course of business), excluding in all events, any future proceeds from the previous asset sale transactions involving Nexvu or FNS, and (g) at any time that a Default shall exist and at the sole discretion of Agent, any other cash received by a Borrower not in the ordinary course of business.

“FCC” means the U.S. Federal Communications Commission.

“Final Closing” means the release from escrow of the Purchased Membership Interests pursuant to the Acquisition Documents.

“Funding Date” means a date (i) no later than one (1) Business Day following the delivery of notification to the Agent, in form and substance satisfactory to Agent in its sole discretion, that the STA Requests (as such term is defined in the Interest Purchase Agreement) have been approved and (ii) on which satisfaction of the applicable conditions set forth in Item 2 of the Addendum have occurred.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination and applied on a consistent basis.

“General Intangibles” means all of each Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of each Borrower (including payment intangibles, all rights under insurance policies and any and all choses or things in action, goodwill, patents and patent applications, trade names, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as each Borrower’s books and records relating to any of the foregoing.

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“Goods” means all of each Borrower’s present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software to the extent included in “goods” as defined in the UCC, manufactured homes, and standing timber that is to be cut and removed for sale.

“Governing Documents” shall mean, with respect to any Person, its certificate or articles of incorporation, certificate of formation, or, as the case may be, certificate of limited partnership, its by-laws, operating agreement or, as the case may be, partnership agreement or other constitutive documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state, local or foreign national or provincial and all agencies thereof, including, without limitation, any domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions.

“HSBC Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and HSBC USA, National Association.

“Indebtedness” shall mean the aggregate amount of, without duplication, (a) all obligations of each Borrower for borrowed money, (b) all obligations of each Borrower evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of each Borrower to pay the deferred purchase price of property or services (excluding trade payables that are aged less than ninety (90) days), (d) all Capitalized Lease Obligations of each Borrower, (e) all obligations or liabilities of any other Person secured by a Lien on any asset of any Borrower, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by any Borrower; and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of any Borrower.

“Intellectual Property” means any and all licenses, patents, copyrights, trademarks, designs and the goodwill associated with such trademarks.

“Interest Expense” means, for any period, the aggregate of the interest expense of the Borrowers for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Purchase Agreement” means that certain Interest and Loan Purchase Agreement dated as of November 14, 2008 among CG Acquisition, Seller, and the Administrators party thereto.

“Inventory” means all of each Borrower’s inventory as defined in the UCC, together with all of each Borrower’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of each Borrower’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

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“Investment” shall mean the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, any Person.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments, certificates and other documents executed and/or delivered in connection with this Agreement, including collateral documents, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments, subordination agreements, intercreditor agreements, warrants and registration rights agreements (it being understood, however, that any termination of this Agreement shall not terminate or otherwise limit Agent’s or any Lender’s rights under any such warrant, registration rights agreement or other related document unless Agent expressly so agrees in writing) and all other agreements executed or delivered by any Borrower or any other Credit Party or any Affiliate of any Borrower or any other Credit Party pursuant hereto or in connection herewith.

“Magenta Account” has the meaning set forth in Section 7(k)(ii).

“Magenta Three-Party Account Agreement” shall mean the Three-Party Account Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, Magenta and HSBC Bank, plc.

“Management Services Agreement” means that certain Management Services Agreement dated as of November 14, 2008, among CG Acquisition, Seller, and the Administrators party thereto.

“Material Adverse Effect” shall mean any state of facts, events, changes or effects that is materially adverse to or materially impairs: (a) the business, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Borrowers taken as a whole; (b) the ability of Borrowers to perform the Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or any of the Lenders to enforce any of its rights or remedies with respect to the Obligations or under the Loan Documents; or (c) the Collateral (including the value and condition thereof) or Agent’s or any Lender’s Liens on the Collateral or the priority of such Liens.

“Material Contract” means, with respect to any Person, (i) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person or such Subsidiary of $250,000 or more, (ii) the Acquisition Documents and (iii) all other contracts or agreements material to the business, operations, condition (financial or otherwise), performance, prospects or properties of such Person or such Subsidiary.

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“Monthly Recurring Circuit Revenue” means the aggregate monthly invoice amount for all monthly billings issued by any of the Borrowers with respect to their circuit business. The monthly recurring circuit revenue will equal the total monthly billing amount determined as of the date the Borrowers issue their monthly invoices (usually the 1^st day of the month).

“Negotiable Collateral” means all of each Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and each Borrower’s books and records relating to any of the foregoing.

“Net Cash Proceeds” means:

(a)with respect to any sale or disposition by a Borrower of property or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under this Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by a Borrower in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction;

(b)with respect to the issuance or incurrence of any Indebtedness by a Borrower, or the issuance by a Borrower of any shares of its Stock (excluding sales of Stock in the Parent pursuant to warrants or options in existence as of the date hereof), the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of a Borrower in connection with such issuance or incurrence, after deducting therefrom only (i) all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such issuance or incurrence, and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction; and

(c)with respect to any Extraordinary Receipts received by a Borrower, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such Extraordinary Receipts, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such Extraordinary Receipts.

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“New Lending Office” has the meaning set forth in Section 2(o).

“Nexvu Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by Nexvu in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Nexvu Manager, Inc. and Nexvu APM, LLC.

“Obligations” means all indebtedness, obligations and liabilities of each Credit Party to Agent, any of the Lenders, and any of their Affiliates, individually or collectively, under the Loan Documents, whether now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise, or whether evidenced by any instrument, agreement or book account, including, but not limited to, the Term Loan (including any modification, renewal or extension), and all interest, taxes, fees, charges, expenses, indemnity obligations and attorney’s fees (whether or not such attorney is a regularly salaried employee of Agent or any of the Lenders or any of their Affiliates) chargeable to any Credit Party or incurred by Agent or any of the Lenders under this Agreement or any other Loan Document.

“Parent Stock Pledge Agreement” means that certain Pledge Agreement of even date herewith granted by Parent in favor of Agent, on behalf if itself and the Lenders, with respect to its Stock in CentrePath, GCG, 20/20 Inc., FNS, Nexvu and CG Acquisition.

“Participant Register” has the meaning specified therefor in Section 16(f)(vii).

“Permitted Dispositions” means (a) sales or other dispositions of Inventory and Equipment that is substantially worn, damaged, or obsolete or no longer used or usable in the business of the Borrowers, in each case, in the ordinary course of business and for fair consideration and on terms no less favorable to the Borrowers than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and (b) sales of Inventory to buyers in the ordinary course of business.

“Permitted Indebtedness” shall mean and include: (a) the Obligations; (b) Indebtedness arising from the endorsement of instruments in the ordinary course of business of a Borrower; (c) Subordinated Debt; (d) Indebtedness existing as of the date hereof to the extent listed on Item 9 of the Addendum; (e) Indebtedness in connection with purchase money security interests constituting Permitted Liens and Capitalized Leases not to exceed, in aggregated principal amount for all Borrowers on a consolidated basis, the amount set forth on Item 20 of the Addendum at any one time outstanding; (f) Indebtedness consisting of reimbursement obligations under surety, indemnity, performance, release and appeal bonds and guarantees thereof and letters of credit issued to landlords in the ordinary course of business of a Borrower; and (g) extensions, refinancings, refundings, renewals, modifications, amendments and restatements of any Permitted Indebtedness that do not increase the principal amount or interest rate per annum thereof, shorten the maturity thereof or accelerate the principal payments thereof.

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“Permitted Investments” shall mean and include: (a) deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent such deposits are fully insured by the Federal Deposit Insurance Corporation in which Agent has a perfected, first-priority security interest, and up £75,000 at any time in the Magenta Account, as disclosed to Agent on Item 14 of the Addendum, in the United Kingdom without such a security interest and provided such account shall be maintained at all times in accordance with the terms of Section 7(k)(ii) of this Agreement; (b) Investments in money market accounts maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (c) Investments in certificates of deposit maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (d) Investments in marketable obligations issued or fully guaranteed by the United States, or any agency thereof, and maturing not more than one (1) year from the date of acquisition; (e) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (f) Investments existing on the date hereof to the extent listed on Item 7 of the Addendum; (g) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business of a Borrower, but only to the extent the same are entered into to hedge risk and not for speculation; (h) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business of the Borrowers; and (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business the Borrowers.

“Permitted Liens” means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment, stay of execution or injunction; (iv) the performance of bids, tenders or contracts (other than for the repayment of borrowed money); (v) indemnity, performance or other bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money); and (vi) obligations to landlords in the ordinary course of business of the Borrowers; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such property or materially detract from the value of such property; (d) Liens existing on the Agreement Date and described on Item 1 of the Addendum; (e) Liens on Equipment securing all or part of the purchase price of such Equipment; provided, however, that (i) such Lien is created contemporaneously with the acquisition of such Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the Indebtedness incurred to acquire such Equipment; (f) so long as the Debenture Intercreditor Agreement is in full force and effect, Liens on all or substantially all assets of Borrowers in favor of the Debenture Purchasers to secure the Debenture Indebtedness, including the indebtedness described in Item 9 of the Addendum; (g) Liens arising from judgments, decrees or attachments that do not constitute a Default under this Agreement; and (h) Liens in favor of Agent or any of the Lenders securing any of the Obligations.

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“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“PIK Interest” has the meaning set forth in the definition of “Applicable Margin”.

“Prime Rate” means, at any time, the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s thirty (30) largest banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three (3) largest U.S. money center commercial banks, as determined by Agent. Notwithstanding the foregoing, for purposes of this Agreement, at no time shall the Prime Rate be less than five percent (5.0%) per annum. The Prime Rate may not be the lowest or best rate at which Agent calculates interest or the Lenders extend credit. Any change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change.

“Private Bank Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and the Depository Bank.

“Pro Rata Share” means the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the Total Commitment.

“Purchased Membership Interests” means the membership interests of Vanco to be purchased by CG Acquisition pursuant to the Acquisition Documents.

“Recurring Circuit Margin” means for a particular measurement period (i) the difference between the Monthly Recurring Circuit Revenue for the months comprising such measurement period and (ii) the direct cost to Borrowers of any circuits included within Monthly Recurring Circuit Revenue for the months included within such measurement period, but excluding any costs which are non-recurring.

“Register” has the meaning set forth in Section 16(f)(iv).

“Registered Loan” has the meaning set forth in Section 16(f)(iv).

“Required Lenders” means Lenders whose Pro Rata Shares aggregate at least 50.1%.

“Related Fund” means, with respect to any Person, an Affiliate of such Person, or a fund or account managed by such Person or an Affiliate of such Person.

“Seller” means Vanco plc (in administration), a United Kingdom corporation.

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“Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act) or equivalent securities issued by Magenta or any other foreign subsidiary.

“Strategic Sourcing Business Unit” means the segment of the Borrowers’ business that provides network services for clients, including design, installation, provisioning, management and monitoring of circuits.

“Subordinated Debt” means (a) so long as the Debenture Intercreditor Agreement remains in full force and effect, the Debenture Indebtedness, and (b) all of the Indebtedness owed by any Borrower to any other Person, the repayment of which is subordinated to the repayment of the Obligations pursuant to the terms of a subordination agreement approved by Agent and the Required Lenders in writing in their sole discretion.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or managing member or may exercise the powers of a general partner whether directly or indirectly, and (c) any other Person (other than a corporation, limited liability company or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Term Loan” has the meaning set forth in Section 2(a).

“Term Note” has the meaning set forth in Section 2(b).

“Total Commitment” means the sum of the amounts of the Lenders' Commitments.

“Transferee” has the meaning set forth in Section 2(o).

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, however, that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

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Other Definitional Provisions. References to the “Addendum” or any “Section” or “Exhibit” refer to the Addendum or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement: words importing any gender include the other genders; the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; all references to time of day shall refer to New York, New York time; and all references to financial calculations or statements on a “consolidated” basis mean calculations or statements that reflect information and results with respect to Borrowers and no other Person. Unless otherwise specifically indicated, all monetary amounts and references herein refer to United States dollars, and all amounts to be loaned and paid hereunder shall be in United States dollars. In the event that Agent receives any payment in any currency other than United States dollars, Agent shall determine the conversion rate with respect to such amount in its reasonable discretion for purposes of determining the amount of the Obligations that have been satisfied.

2.Borrowing and Terms of Payment.

(a)The Term Loan. Subject to the terms and conditions set forth in this Agreement, each Lender, simultaneously and proportionately to their Pro Rata Shares of the Total Commitment, agrees to make a term loan in favor of the Borrowers to be funded on the Funding Date (the “Term Loan”). Any portion of the Total Commitment not funded on the Funding Date, shall not be available to the Borrowers without the Agent’s express written consent. Subject to satisfaction of the applicable conditions set forth in Item 2 of the Addendum,on the Funding Dateeach Lender shall disburse the proceeds of the Term Loan to the Borrowers or as the Borrowers’ Agent shall request in writing. Amounts repaid in respect of the Term Loan may not be reborrowed.

(b)The Term Note. The Term Loan shall be evidenced by separate promissory notes of the Borrowers in the form of Exhibit C attached hereto payable to each Lender (the “Term Note”) in the original principal amount of such Lender’s Commitment, dated as of the Agreement Date (or such other date on which a Lender may become a party hereto in accordance with Section 16(f) hereof)and completed with appropriate insertions.

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(c)Mandatory Prepayments.

(i)Immediately upon the receipt by any Borrower of the proceeds of any voluntary or involuntary sale or disposition by any Credit Party of property or assets (including casualty losses or condemnations but excluding sales or dispositions which qualify as Permitted Dispositions) (“Borrower Asset Sales”), Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such Borrower Asset Sale; provided that, solely in respect of any Borrower Asset Sales, so long as (A) no Default shall have occurred and is continuing, (B) Borrower’s Agent shall have given Agent prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the monies are held in a cash collateral account in which Agent, for the benefit of the Agent and the Lenders has a perfected first priority security interest, and (D) Borrowers complete such replacement, purchase, or construction within 90 days after the initial receipt of such monies, Borrowers shall have the option to apply such monies to the costs of replacement of the property or assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent for application against the Obligations. Nothing contained in this Section 2(c)(i) shall permit any Borrower to sell or otherwise dispose of any property or assets other than in accordance with the terms and conditions of this Agreement.

(ii)Immediately upon the receipt by any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Extraordinary Receipts.

(iii)Immediately upon the issuance or incurrence by any Borrower of any Indebtedness (other than Indebtedness permitted hereunder) or the issuance by any Borrower of any shares of such Borrower’s Stock (excluding sales of Stock of the Parent pursuant to warrants or options in existence as of the date hereof) Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such issuance or incurrence. The provisions of this Section 2(c)(iii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(iv)No later than two (2) Business Days following the receipt by any Borrower of any BT Receivable Payment, Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to sixty-six percent (66%) of the BT Receivable Payment received by such Person. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

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(v)Within ten (10) days following delivery to Agent and the Lenders of Borrowers’ monthly financial statements pursuant to Section 9(a) for the month ended December 31, 2009 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 9(a), ten (10) days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 9(a), Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to 50% of the Excess Cash Flow of the Borrowers for fiscal year 2009. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have overpaid the Excess Cash Flow payment referred to herein, then the Agent shall credit such overpayment to any interest then due and payable, if any, or the Borrowers’ next scheduled payment of interest if no interest is then due and payable. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have underpaid the Excess Cash Flow payment referred to herein, then the amount of such underpayment shall be immediately due and payable in cash to the Agent for application to any outstanding Obligations. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

(d)Voluntary Prepayments. Borrowers may prepay the principal balance of the Term Loan in whole or in part at any time upon at least 30 days’ prior written notice from Borrowers’ Agent to Agent (which notice, once given shall be irrevocable). Any such prepayment of principal shall be accompanied by accrued interest on the amount so prepaid and any fees pursuant to Section 3(c) due and payable on the amount so prepaid. Any portion of the Term Loan prepaid hereunder may not be reborrowed.

(e)Conditions to Obligation to Making of the Term Loan. Borrowers acknowledge that Lenders’ obligation to make the Term Loan to Borrowers is subject to the following terms and conditions:

(i)Agent has no obligation to make the Term Loan to Borrowers or to extend any other financial accommodation to any Borrower unless and until (A) Borrowers deliver to Agent, in form and substance satisfactory to Agent in its discretion, each agreement, instrument, legal opinion and other document specified on Item 2 of the Addendum,and (B) each other condition precedent specified on Item 2 of the Addendumhas been satisfied in a manner satisfactory to Agent in Agent’s sole discretion. Once the conditions described in this Section 2(e) have been satisfied in Agent’s sole and absolute discretion, Agent shall provide Lender with a letter confirming same.

(ii)Lenders’ obligation to make the Term Loan to Borrowers and extend other financial accommodations to Borrowers is subject to the conditions that, as of the Agreement Date, (A) no Default will have occurred and be continuing hereunder, (B) there will have occurred no event or circumstance which has had or which could reasonably be expected to have a Material Adverse Effect, (C) Borrowers’ representations and warranties set forth in this Agreement and the other Loan Documents will be true and correct and (D) the Borrowers’ application for Special Temporary Authority has been approved by the applicable governmental authorities, as defined and described in the Interest Purchase Agreement.

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(f)Repayment of Term Loan. The entire outstanding principal balance of the Term Loan, together with all accrued and unpaid interest and all other outstanding Obligations, shall be due and payable on the Termination Date as provided for in Item 3 of the Addendum, unless sooner due as a result of acceleration or demand hereunder. Borrowers shall make each payment required hereunder or under any other Loan Document without setoff, deduction or counterclaim. All payments by Borrowers shall be made to Agent’s for the account of the Lenders or as otherwise directed by the Agent in writing from time to time and shall be made in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. Any payment received by Agent (or such Person to whom the Agent has directed payment) later than 2:00 p.m. (New York City time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(g)Maturity. This Agreement will continue in full force and effect from the Agreement Date until the Termination Date provided for in Item 3 of the Addendum.

(h)Termination on Default. Notwithstanding the foregoing, should a Default occur and be continuing, Agent will have the right to terminate this Agreement at any time without notice.

(i)Survival. Notwithstanding termination, all the terms, conditions, and provisions hereof (including Agent’s security interest in the Collateral, but excluding any obligations of Agent hereunder) will continue to be fully operative until all Obligations have been fully disposed of, concluded, paid, satisfied, and liquidated (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and obligations under the warrant and registration rights agreement issued or executed in connection herewith). All indemnification obligations of Borrowers hereunder and under the other Loan Documents shall survive termination of this Agreement and the other Loan Documents.

(j)Borrowers’ Agent. Each Borrower other than Parent hereby appoints Parent, and Parent shall act under this Agreement and the other Loan Documents, as, the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent, and each of the Lenders, may rely, and shall be fully protected in relying, on any disbursement instruction, report, information or any other notice or communication made or given by Parent, whether in its own name, as Borrowers’ Agent, or on behalf of one or more Borrowers, and Agent and each of the Lenders, shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers’ obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Borrower from taking actions permitted to be taken by a “Borrower” hereunder.

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(k)Joint and Several Liability.

(i)The Term Loan made to Borrowers and all of the other Obligations of Borrowers, including all interest, fees and expenses with respect thereto, shall constitute one joint and several direct and general obligation of all Borrowers. Notwithstanding anything to the contrary contained herein, each Borrower shall be jointly and severally, with each other Borrower, directly and unconditionally liable to Agent and each of the Lenders for all Obligations, it being understood that the Term Loan to each Borrower inures to the benefit of all Borrowers, and that Agent and each of the Lenders are relying on the joint and several liability of Borrowers as co-makers in extending the Term Loan hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any Obligation payable to Agent or any of the Lenders, it will forthwith pay the same, without notice or demand, unless such payment is then prohibited by application of law (provided such Obligation shall not be extinguished by any such prohibition).

(ii)No payment or payments made by any Borrower or any other Person or received or collected by Agent from any Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of each Borrower under this Agreement, and each Borrower shall remain liable for all of the remaining Obligations until the Obligations are paid in full.

(l)Obligations Absolute. Each Borrower agrees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any of the Lenders with respect thereto, unless such payment is then prohibited by applicable law (provided such Obligation shall not be extinguished by any such prohibition.) All Obligations shall be conclusively presumed to have been created in reliance hereon. The Obligations and other liabilities under this Agreement and the other Loan Documents shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the extension of additional credit to any Borrower or otherwise; (iii) any taking, exchange, release of or non-perfection in any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate or limited liability structure or existence of any Borrower; or (v) any other circumstance which may otherwise constitute a defense available to, or a discharge of, any Borrower. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Agent or any of the Lenders upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.

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(m)Waiver of Suretyship Defenses. Each Borrower agrees that the joint and several liability of Borrowers provided for in this Agreement shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which one or more other Borrowers may hereafter agree (other than an agreement signed by Agent specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Agent with respect to any of the Obligations, nor by any other agreements or arrangements whatever with one or more other Borrowers or with any other Person, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the Obligations and may be enforced without requiring Agent first to resort to any other right, remedy or security. Each Borrower hereby expressly waives promptness, diligence, notice of acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and any requirement that Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other Person or any Collateral.

(n)Contribution and Indemnification among Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting any of the Term Loan made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then, to the extent that such Borrower has not received the benefit of such repaid Obligations (whether through an inter-company loan or otherwise), the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount (as defined below) and the denominator of which fraction is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the greater of (i) the amount of such repaid Obligations actually received by such Borrower (whether through an inter-company loan or otherwise), and (ii) the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (x) rendering such Borrower “insolvent” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”), Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (y) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (z) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification and reimbursement under this paragraph shall be subordinate in right of payment to the prior payment in full of the Obligations.

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(o)Non-U.S. Lender. Each Lender (or any transferee or assignee thereof, including a participation holder (any such entity, a “Transferee”), that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “NonU.S. Lender”) shall deliver to the Agent and the Borrowers two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881 (c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), in each case claiming complete exemption from U.S. Federal withholding tax on payments by the Credit Parties under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms or any other forms required under applicable law within 20 days after receipt of a written request therefor from the Borrowers or the Agent. Notwithstanding any other provision of this Section 2(o), a Non-U.S. Lender shall not be required to deliver after the date hereof any form pursuant to this Section 2(o) that such Non-U.S. Lender is not legally able to deliver.

3. Interest and Fees.

(a)Interest on the Term Loan. The Term Note shall bear interest at the Applicable Rate. Interest on the Term Note shall be computed on the basis of the actual number of days elapsed over a year of 360 days. All accrued interest on the Term Note shall be payable monthly in arrears, in cash or in PIK Interest, as specified in the definition of Applicable Margin.

(b)Default Interest. To the extent permitted by law and without limiting any other right or remedy of Agent or any of the Lenders hereunder, whenever there is a Default under this Agreement, the rate of interest on the unpaid principal balance of the Obligations shall, at the option of Agent or the Required Lenders, be increased by adding the default margin identified on Item 4 of the Addendum to the interest rate otherwise in effect hereunder. In addition, upon the occurrence and during the continuation of a Default under this Agreement, all accrued PIK Interest shall immediately become due and payable in full and without any notice, demand or presentment of any kind notwithstanding any acceleration by the Required Lenders hereunder. Agent may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Borrowers acknowledge that: (i) such additional rate is a material inducement to Lenders to make the Term Loan described herein; (ii) Lenders would not have made the Term Loan in the absence of the agreement of Borrowers to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lenders that the Term Loan will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Agent and each of the Lenders in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Term Loan, and (B) compensation to Agent and each of the Lenders for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Agent’s and each of the Lenders’ entitlement to this charge will continue until all Obligations are paid in full.

(c)Fees. Borrowers will pay to Agent (to be allocated among the Lenders in accordance with their Pro Rata Shares) the fees set forth in Item 5 of the Addendum.

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(d)No Usury. Borrowers acknowledge that Agent does not intend to reserve, charge or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Agent should collect any amount from Borrowers which, if it were interest, would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations remain outstanding, will be refunded to Borrowers.

4. Representations and Warranties of Borrowers.

(a)Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc. Borrowers represent and warrant to Agent and the Lenders that: (i) the exact legal name, type of organization, jurisdiction of organization and organizational identification number of each Borrower are fully and accurately set forth on Item 6 of the Addendum, and each Borrower is duly organized and validly existing under the laws of its jurisdiction of organization; (ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Borrower’s corporate or limited liability company powers, have been duly authorized by all necessary corporate or limited liability company action, do not violate (A) any Borrower’s constituent documents, any law or regulation, including without limitation, (B) any law or regulation relating to occupational health and safety or protection of the environment, applicable to any Borrower, or any indenture, agreement, or undertaking to which any Borrower is a party or by which any Borrower or any Borrower’s property is bound, except where such violation could not reasonably be expected to have a Material Adverse Effect; (iii) this Agreement and the other Loan Documents to which any Borrower is a party constitute valid, binding and enforceable obligations of each Borrower party thereto in accordance with the terms hereof and thereof, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors’ rights generally or by generally applicable equitable principles affecting the enforcement of creditors’ rights; (iv) no Borrower has any subsidiaries or other investments in other Persons, except as set forth on Item 7 of the Addendum and except for other Permitted Investments; (v) except as set forth on Item 29 of the Addendum, each Borrower is in compliance in all material respects with all laws, rules and regulations applicable to such Borrower, including laws, rules or regulations concerning the environment, occupational health and safety and pensions or other employee benefits; (vi) except as set forth on Item

8 of the Addendum, there is no litigation or investigation pending against any Borrower (or, so far as any Borrower is aware, threatened) which, if it were decided adversely to such Borrower, could reasonably be expected to have a Material Adverse Effect (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the Term Loan hereunder, no Borrower is indebted to any other Person for money borrowed nor has any Borrower issued any guaranty of payment or performance by any other Person, except for Permitted Indebtedness; (viii) since the date of the financial statements of Borrowers most recently delivered to Agent, there has been no material adverse change in any Borrower’s business, any Borrower’s financial or operational condition or any Borrower’s business prospects; and (ix) each Borrower is, and after giving effect to the consummation of the Acquisition, the incurrence of the Term Loan under this Agreement and the application of the proceeds of such Term Loan, the Borrowers, on a consolidated basis, will be, solvent and will have sufficient revenues to pay the Borrowers’ obligations as they come due and adequate capital with which to conduct the Borrowers’ business, all determined on a consolidated basis.

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(b)Title to Assets, Other Collateral Matters. Borrowers represent and warrant to Agent and the Lenders that: (i) subject to the escrow established for the Purchased Membership Interests pursuant to the Acquisition Documents, Borrowers have good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust, security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by any Borrower, except in Agent’s favor for the benefit of the Agent and the Lenders, and except with respect to Permitted Liens; (ii) the Accounts are not subject to any material dispute, claim or right of offset and are validly owing by the applicable Customers and, subject to immaterial exceptions, are collectible by Borrowers in the ordinary course of business; (iii) all Inventory is in good condition, meets all applicable governmental standards and is currently usable or saleable in the ordinary course of the applicable Borrower’s business for a price approximating at least such Borrower’s cost thereof; (iv) all Equipment is in good condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards in all material respects; (vi) in the past five years, except as set forth on Item 9 of the Addendum (A) no Borrower has used any other legal, trade or fictitious names, and (B) other than the Acquisition, no Borrower has been a party to any merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) the chief executive office and principal place of business of each Borrower, all Inventory, all Equipment and all other Collateral is located at the addresses (including the county) set forth on Item 11 of the Addendumand has not been located at any other location during the five year period prior to the Agreement Date.

(c)Ownership Structure.Borrowers represent and warrant that Item 12 of the Addendum accurately describes the ownership of each Borrower’s capital stock, membership interests or other equity interests.

(d)Acquisition. Borrowers represent and warrant to Agent and the Lenders that (i) Borrowers have furnished to Agent true, complete and correct copies of all of the Acquisition Documents (including any schedules, exhibits and annexes thereto) as in effect on the date hereof; (ii) none of the Acquisition Documents has been amended, supplemented or modified; (iii) the Acquisition Documents constitute the complete understanding among the parties thereto in respect of the Acquisition and the other matters and transactions covered thereby; (iv) each Acquisition Document has been duly executed and delivered by the parties thereto and is a legal, valid and binding obligation of each such party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles; and (v) the Borrowers are not aware of any fact or circumstance that would prohibit the Acquisition from occurring including, without limitation, the Final Closing.

(e)Consummation of Transactions. Subject to the occurrence of the Final Closing upon satisfaction of the conditions precedent set forth in Section 1.5 of the Interest Purchase Agreement, Borrowers represent and warrant to Agent and the Lenders that, on the Agreement Date, the transactions contemplated by the Acquisition Documents will have been consummated in accordance with all applicable laws (except where such non-compliance could not reasonably be expected to have a Material Adverse Effect) and, except as consented to in writing by Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the material conditions to such consummation set forth in the Acquisition Documents shall have been fulfilled without any waiver of any such material conditions. Agent acknowledges that the Purchased Membership Interests shall be held in escrow pursuant to the satisfaction of certain conditions specified in the Interest Purchase Agreement, and Borrowers represent and warrant to Agent and Lenders that (i) the Purchased Membership Interests will be owned by CG Acquisition free of such escrow arrangement or any claim by Seller no later than 90 days after the Agreement Date, and (ii) the Seller has no right to remove the Purchased Membership Interests from such escrow arrangement or otherwise reclaim the Purchased Membership Interests or prevent CG Acquisition from becoming the absolute owner thereof no later than 90 days following the Agreement Date.

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(f)Licenses and Governmental Approvals. Borrowers represent and warrant to Agent and Lenders that, except for those Governmental Approvals the absence of which could not reasonably be expected to have a Material Adverse Effect, (i) each Borrower has all Governmental Approvals required by applicable law in order to operate its business; (ii) all such Governmental Approvals are in full force and effect; and (iii) Agent and each of the Lenders are not required to obtain any such Governmental Approval in order to enter into the transactions contemplated by this Agreement or to exercise their rights and remedies hereunder (including the liquidation of the Collateral and collecting the Accounts), except for such consents and approvals as may be required by the FCC or any state public service commission in connection with the transfer of control or assignment of a licensee of, or an authorization or license issued by such governmental entity to Vanco and as set forth on Item 29 of the Addendum and except for such consents and approvals that that would be required under federal law for Agent and each of the Lenders to exercise their rights and remedies hereunder.

(g)Additional Representations. Borrowers represent and warrant to Agent and the Lenders that: (i) no Borrower is engaged as one of such Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) no Borrower owns any real property or leases any real property other than as listed on Item 13 of the Addendum; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Item 13 of the Addendum; and (iv) a true, correct and complete list and brief description of all bank accounts maintained by each Borrower with any bank or financial institution is set forth on Item 14 of the Addendum.

(h)Intellectual Property. Borrowers represent and warrant to Agent and the Lenders that, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Item 15 of the Addendum is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Borrower is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, to the best knowledge of Borrowers, after reasonable inquiry, threatened in writing to be brought against any Borrower which would be reasonably likely to jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications.

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(i)Leases. Borrowers represent and warrant that, each Borrower enjoys peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by a Borrower exists under any of them.

(j)Material Contracts. Borrowers represent and warrant that, set forth on Item 16 of the Addendumis a description of all Material Contracts of the Borrowers, showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the applicable Borrower and, to the best of Borrowers’ knowledge, each other Person that is a party thereto in accordance with its terms, (b) is not in default due to the action or inaction of any Borrower and (c) neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under any Material Contract.

(k)Customers and Suppliers. Borrowers represent and warrant that, set forth on Item 17 of the Addendum is a list of the top 20 largest customers of the Credit Parties and the top 20 largest suppliers of Credit Parties, in each case for the year ended December 31, 2007 and the six-month period ended June 30, 2008. Except as contemplated by the BT Receivables Agreement, there has not been, and none of Credit Parties have received notice of, any termination or cancellation of, or a materially adverse modification or change in, the business relationship with any of the 10 largest customers and suppliers, and, to the knowledge of Credit Parties, such customers and suppliers intend to renew their customer or supplier contracts, as applicable, in the ordinary course and on terms as favorable as those currently in place.

(l)Taxes. Borrowers represent and warrant that, each of the Credit Parties has filed all federal, state, and other tax returns and reports required to be filed, and have paid all federal, state, and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable.

(m)FCC Licenses, Etc. Except for any change of control or similar applications to be filed with respect to Vanco as described in Item 29 of the Addendum, Borrowers represent and warrant that, all FCC, state public utility commission and other required permissions and licenses are in good standing, and that Borrowers are not aware of any claim, purported claim or unrealized claim against the validity of the Borrowers’ ability to operate now and into the future under such existing licenses.

(n)Working Capital. Borrowers represent and warrant that after giving effect to the transactions contemplated in the Debenture Documents and this Agreement (i) the Borrowers, on a consolidated basis, have not less than (a) ($8,453,687) in Adjusted Working Capital and (b) not less than $6,000,000 in cash;  and (ii) the aging and collectability of the Borrowers' accounts receivable is in all material respects similar to the aging and collectability of the accounts receivable reflected by the financial statements delivered to Agent pursuant to Item 2(p) of the Addendum. 

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5. Collateral.

(a)Grant of Security Interest. To induce the Lenders to accept this Agreement and to make the Term Loan to Borrowers, each Borrower hereby grants to Agent, for itself and as agent for each Lender, a security interest in, and assigns, mortgages and pledges to Agent, for itself and as agent for any each Lender, all of such Borrower’s right, title and interest in and to all of such Borrower’s property (other than Excluded Equipment), whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising, including all of the following (collectively, the “Collateral”):

(i)all Accounts,Inventory, Equipment (other than Excluded Equipment), Goods, General Intangibles, Intellectual Property and Negotiable Collateral;

(ii)all investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts and all funds on deposit therein;

(iii)all chattel paper (whether tangible or electronic) and contract rights;

(iv)all guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

(v)all documents, books and records relating to any Collateral or to any Borrower’s business;

(vi)all Governmental Approvals and all proceeds from Governmental Approvals, but in each case only to the extent permitted under applicable law (including, without limitation, the Communications Act of 1934);

(vii)all other property of any Borrower now or hereafter in the possession or control of Agent or any of Agent’s Affiliates (including cash, money, credits and balances of any Borrower held by or on deposit with Agent or any Affiliate of Agent);

(viii)all other assets of any Borrower in which Agent receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody or control of Agent or any Affiliate of Agent;

(ix)all of each Borrower’s commercial tort claims listed on (A) Item 18 of the Addendum(which Borrowers represent and warrant is a true, accurate and complete list of all of each Borrower’s commercial tort claims as of the Agreement Date) or (B) any other writing provided to Agent pursuant to Section 7(g); and

(x)all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

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(b)Obligations. Such grant, assignment, mortgage and transfer is made for the purpose of securing, and the Collateral secures and will continue to secure, all of the Obligations; provided that upon satisfaction of all Obligations other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement, the Lenders shall release any Liens in the Collateral.

(c)Excluded Equipment. Borrowers agree that Agent shall automatically have a security interest in the Excluded Equipment promptly after receiving any Governmental Approvals required for the lawful grant of such security interest. Borrowers agree to execute and deliver to Agent such security agreements and other documents confirming such grant as Agent may reasonably request, but any failure to do so shall not limit Agent’s security interest therein pursuant to the first sentence of this paragraph. Each Borrower represents and warrants to Agent that it does not own any Excluded Equipment.

6.Financial Covenants. Unless the Required Lenders shall otherwise consent in writing, the Borrowers, on a consolidated basis, shall comply with each of the financial covenants set forth on Item 19 of the Addendum.

7.Collateral Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 7, unless the Required Lenders shall otherwise consent in writing.

(a)Accounts. Borrowers will notify Agent promptly of and settle all Customer disputes, but, if Agent so elects while a Default exists, Agent will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and conditions as Agent deems advisable without incurring liability to any Borrower for Agent’s performance of such acts. Agent may, at any time and from time to time, contact Customers to verify Accounts and, while a Default exists, Agent may notify Customers of Agent’s security interest in the Accounts and instruct such Customers to pay such Accounts to one of the bank accounts listed on Item 14 of the Addendum. All of each Borrower’s books and records concerning Accounts and a copy of each Borrower’s general ledger will be maintained at the address of Borrowers’ chief executive office set forth on Item 11 of the Addendum. All Accounts will be, in all material respects and except as otherwise indicated in writing to Agent, bona fideand existing obligations of Customers arising out of the sale of goods and/or the rendering of services by Borrowers in the ordinary course of Borrowers’ business, owned by and owing to the applicable Borrower without defense, setoff or counterclaim, and will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens.

(b)Inventory. All Inventory will at all times be located at one of the Inventory locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum, will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens. Sales of Inventory will be made in compliance with all material requirements of applicable law.

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(c)Equipment. Borrowers will maintain all Equipment used or useful in Borrowers’ business in good and workable condition, ordinary wear and tear excepted, and, except for Excluded Equipment only for the first 90 days after the Agreement Date, subject to a perfected, first-priority security interest in Agent’s favor and free and clear of all other Liens (other than Permitted Liens), at one of the locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum.

(d)Defense of Title. All Collateral will at all times be owned by Borrowers, and Borrowers will defend Borrowers’ title to the Collateral against the claims of third parties. Borrowers will at all times keep accurate and complete records of the Collateral.

(e)Perfection; Further Assurances. No Borrower shall change its name, jurisdiction of organization, type of organization or organizational identification number; provided, however, that Vanco may change its name to “Global Capacity Direct, LLC” so long as Borrowers provide Agent with at least 5 Business Days’ notice of such name change. Borrowers will give Agent at least 30 days’ prior written notice of any change in the location of any Borrower’s principal place of business or chief executive office, any change in the locations of any Borrower’s Inventory or Equipment and any acquisition by any Borrower of any interest in real property. Each Borrower will, at Borrowers’ expense, promptly execute and deliver from time to time at Agent’s request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary or desirable to perfect or continue perfection of Agent’s security interest in Borrowers’ property or, at Agent’s request, to create and perfect a Lien on newly acquired real property. Borrowers will use all reasonable efforts to obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Agent’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers shall, immediately upon written request therefor from Agent, endorse and assign such Negotiable Collateral over to Agent and deliver actual physical possession of the Negotiable Collateral to Agent. Borrowers shall at any time and from time to time take such steps as Agent may request for Agent (i) to obtain an acknowledgment, in form and substance satisfactory to Agent, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Agent, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or chattel paper (including electronic chattel paper) in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Agent, (iii) to have Agent’s Lien noted on each certificate of title evidencing any Collateral, and (iv) otherwise to insure the continued perfection and priority of Agent’s security interest in any of the Collateral and of the preservation of its rights therein. Agent may, from time to time at Borrowers’ expense, obtain an appraisal on some or all of the Collateral; provided, however, that Borrowers shall not be required to reimburse Agent for more than one such appraisal per calendar year (it being understood that any such appraisal conducted while a Default exists shall not count against such one-per-year limitation).

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(f)Insurance. Borrowers will obtain and maintain in full force and effect insurance covering the Collateral against all customary risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such customary risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent, which policies will name Agent, for itself and each of the Lenders, as an additional insured and provide that loss thereunder will be payable to Agent as Agent’s interests may appear upon a loss payee endorsement reasonably acceptable to Agent. Borrowers will also obtain and maintain in full force and effect liability insurance and such other types of insurance as Agent may reasonably require (including business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent. All proceeds of any such insurance will be paid over to Agent directly, and Agent may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Agent determines or, in Agent’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Borrowers will provide to Agent on or prior to the Agreement Date and from time to time thereafter, certificates showing such coverage in effect and, at Agent’s request, the underlying policies.

(g)Commercial Tort Claims. If any Borrower shall at any time acquire a commercial tort claim, Borrowers shall immediately notify Agent in a writing signed by the applicable Borrower of the details thereof and grant to Agent, for itself and each of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

(h)Financing Statements. Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrowers or words of similar effect and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the applicable Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and each Borrower hereby ratifies and re-authorizes any such financing statement filed by Agent on or prior to the Agreement Date. Each Borrower agrees to furnish any such information to Agent promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Agent on behalf of any Borrower or filed by Agent without the signature of any Borrower and may be filed at any time in any jurisdiction. Each Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any Borrower as the debtor and Agent as the secured party without the prior written consent of Agent, and each Borrower agrees that it shall not do so without the prior written consent of Agent.

(i) Governmental Approvals.

(i)Each Borrower shall maintain in full force and effect all Governmental Approvals required by applicable law in order to operate such Borrower’s business, except for those Governmental Approvals, the absence of which could not reasonably be expected to result in a Material Adverse Effect. Borrowers shall promptly notify Agent in the event that any such license or approval is revoked or if any Borrower receives any notice from any licensing authority or other governmental authority which alleges that any Borrower is or may be in violation of any applicable law, rule, regulation or licensing requirement.

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(ii)Borrowers shall, as described below, act immediately, upon notice of a Default, to permit Lender to realize the full value of foreclosure on the Collateral, including, without limitation, by obtaining any and all regulatory approvals required to do so. For example, and without limitation of the foregoing, if the approval of the FCC or any state public service commission is required in connection with any action taken by the Agent or any Lender (including any of their respective agents, officers, and attorneys) in the exercise of their rights and remedies hereunder with respect to the Collateral, in order to facilitate the intended realization of the value of the Collateral the Borrowers shall immediately and in no event later than three (3) Business Days following notice thereof take such action as is requested by Lender or Agent to obtain each and any approval required to allow a Lender the full benefit of the Collateral and Borrowers shall diligently pursue the obtaining of such approvals until obtained in accordance with the instructions of Agent or a Lender and applicable law. For avoidance of doubt, and by way of example, immediately upon notice thereof, Borrowers shall or shall cause their counsel to prepare, or at the option of Agent or a Lender to cooperate with counsel of Agent or a Lender in preparing, relevant applications to the FCC and each applicable state public service commission to seek approval of a substantial transfer of control of the applicable Borrower or its licenses and authorizations as instructed by Agent or a Lender, or to do any other action to protect for a Lender the value of the applicable Borrower’s licenses and authorizations. Without diminution of the foregoing, the Borrowers shall, immediately following the occurrence of a Default which is continuing, upon the written request and instructions of the Agent, execute and deliver (or cause the execution and delivery of) all relevant applications, certificates, instruments, agreements and other documents to the FCC or the applicable state public service commission, or at the option of Agent or a Lender, to Agent or a Lender for filing with Borrowers’ cooperation, which are required to be filed in connection with obtaining any required approval of the FCC or any state public service commission and take such other action as the Agent may request in connection therewith.

(j) Conduct of Business. The Borrowers shall conduct their business in substantially the same manner as currently conducted.

(k) Bank Accounts.

(i)The Borrowers (other than Magenta) will maintain their principal accounts for operation, administration, cash management and other deposit accounts for the conduct of the Borrowers’ business with the Depository Bank. On or prior to the Agreement Date, the Borrowers will establish and maintain (so long as the Obligations are outstanding), the Private Bank Account Control Agreement, which shall be applicable to all bank accounts of the Borrowers, other than the bank account maintained by Magenta in the United Kingdom and the account subject to the HSBC Account Control Agreement.

(ii) Magenta will maintain a single bank account (as disclosed to Agent on Item 14 of the Addendum) with HSBC Bank plc (the “Magenta Account”). On or prior to the Agreement Date, Magenta will establish and maintain (so long as the Obligations are outstanding), the Magenta Three-Party Account Agreement, pursuant to which all amounts deposited in the Magenta Account in excess of £75,000 shall automatically be transferred (on a daily basis if applicable) to the account of Borrowers identified in the Magenta Three-Party Account Agreement which is subject to the HSBC Account Control Agreement.

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(l)Employment Agreements. The non-compete provisions contained in the Employment Agreements shall remain in full force and effect and shall not be amended, modified or waived without the Agent’s written consent.

8.Negative Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 8, unless the Required Lenders shall otherwise consent in writing.

(a)No Merger or Disposition of Assets. No Borrower will merge or consolidate with any other Person, or purchase all or substantially all of the assets of any other Person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of such Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, each Borrower may make Permitted Dispositions.

(b)No Debt or Liens; Taxes. No Borrower will obtain or attempt to obtain from any Person other than Agent any loans, advances, or other financial accommodations or other Indebtedness of any kind, nor will any Borrower enter into any direct or indirect guaranty of any obligation of another Person, other than Permitted Indebtedness. No Borrower will permit any of its assets to be subject to any Lien other than Permitted Liens. Each Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrowers will, upon request by Agent, promptly furnish Agent with proof satisfactory to Agent that Borrowers have made such payments and deposits.

(c)No Distributions; Payments on Subordinated Debt. No Borrower will retire, repurchase or redeem any of such Borrower’s Stock in such Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of Stock) to any owner or holder of such Borrower’s Stock; provided, however, that any Borrower may pay cash dividends or distributions to any other Borrower which owns such Borrower’s Stock. No Borrower will refinance, repurchase, defease or make any payment on any Subordinated Debt, other than payments expressly permitted by the Debenture Intercreditor Agreement or subordination provisions applicable to such Subordinated Debt.

(d)No ERISA Liabilities. Borrowers will make timely payments of all contributions required to meet the minimum funding standards for Borrowers’ employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Agent the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by any Borrower of any governmental notice (other than routine requests for information) in respect of any such plan.

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(e)Transactions with Affiliates. No Borrower will engage in any transaction with any of such Borrower’s or any other Borrower’s officers, directors, employees or other Affiliates, except for an “arms-length” transaction on terms no less favorable to such Borrower than would be granted to such Borrower in a transaction with a Person who is not an Affiliate of any Borrower, which transaction shall be approved by such Borrower’s disinterested directors or managers and shall be disclosed in a timely manner to Agent prior to the consummation of the transaction.

(f)Loans/Investments. No Borrower will make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit to customers in the ordinary course of business; and (ii) Permitted Investments. No Borrower shall purchase, acquire or otherwise invest in any Person except Permitted Investments and investments in other Borrowers; provided, however, that the aggregate amount of intercompany advances and other transfers to Magenta by the other Borrowers shall not exceed the actual cash expenses of Magenta, which such actual cash expenses shall be in the ordinary course and consistent with past practices of Magenta. Without limiting the generality of the foregoing, no Borrower shall create any new subsidiary or make loans to, transfer any money or other assets to or otherwise invest in any subsidiary unless such subsidiary is or becomes a Borrower hereunder pursuant to documentation acceptable to Agent in its reasonable discretion.

(g)Capital Expenditures. Borrowers shall not make or incur capital expenditures in excess of the amount set forth on Item 21 of the Addendum during any fiscal year, determined for all Borrowers on a consolidated basis.

(h)Compensation. Borrowers shall not increase the total compensation paid to their officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year of Borrowers in an aggregate amount for all such officers and directors in excess of the limit specified in Item 22 of the Addendum.

(i)Amendments of Documents. No Borrower shall amend or modify (i) any Acquisition Document or any other note, instrument or agreement in connection with the Acquisition without the prior written consent of Agent, (ii) its articles or certificate of incorporation, articles or certificate of organization, by-laws, limited liability company agreement or other constituent documents, or (iii) any Debenture Document or any other note, instrument or agreement in connection with any other Subordinated Debt without the prior written consent of Agent; provided, however, that Borrowers may amend the Debenture Documents without the consent of the Agent to the extent expressly permitted by the Debenture Intercreditor Agreement.

(j)Capitalized Leases. The Borrowers, taken as a whole, shall not incur greater than $500,000 in additional Capitalized Lease Obligations after the date hereof; providedfurther, that such Capitalized Lease Obligations shall be (i) on terms and conditions consistent with current market conditions for equipment of that kind, and (ii) solely for the purchase and/or lease of new pieces of or as a replacement of existing equipment.

(k)Use of Proceeds. Borrowers shall not use the proceeds of the Term Loan for any purpose other than (i) consummating the Acquisition, and (ii) general working capital purposes.

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(l)BT Receivable. Borrowers shall not compromise or settle any dispute, provide a discount, write-off, or waive collection of any part of the BT Receivable without the prior written consent of the Agent.

9. Reporting and Information.

(a)Financial StatementsBorrowers will submit to Agent as soon as available, and in any case not later than thirty (30) days after the end of each month, a balance sheet and a detailed statement of profit and loss by business unit and a statement of cash flows, in each case prepared in accordance with GAAP on a consolidated (and, if requested by Agent, consolidating) basis, certified by the chief financial or accounting officer of Parent as presenting fairly, in accordance with GAAP, Borrowers’ financial condition as of the last day of such month and Borrowers’ results of operations for such month and for the portion of Borrowers’ fiscal year ending with such month. Borrowers will also submit to Agent annual financial statements within 120 days after the end of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders’ equity, and a statement of cash flows, in each case prepared in accordance with the requirements set forth on Item 23 of the Addendum on a consolidated (and, if requested by Agent, consolidating) basis. Borrowers will also submit to Agent annually at least 60 days prior to Borrowers’ fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement on a consolidated (and, if requested by Agent, consolidating) basis. Together with each monthly and annual financial statement, Borrowers will deliver to Agent the certification of the chief financial or accounting officer of Parent in the form of Exhibit B attached hereto to the effect that Borrowers are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if Borrowers are not in compliance, describing the nature of any noncompliance and the steps Borrowers are taking or propose to take to remedy the same. Borrowers shall, promptly, upon request, furnish such other information concerning the condition, operations, financial or otherwise, of any Borrower as the Agent may from time to time request.

(b)Collateral Reports. Borrowers shall deliver to Agent within fifteen (15) days after the end of each month a report, reflecting the status as of the end of each month or for the month then ended, as the case may be, and certified by the Chief Executive Officer or Chief Financial Officer of Parent as being true and correct in all material respects, containing (i) a current detailed aging, by total and by Customer, of Borrowers’ Accounts, (ii) a current detailed aging, by total and by vendor, of Borrowers’ accounts payable, (iii) a schedule detailing loans and intercompany transfers to Magenta from any other Borrower, and (iv) a true, correct and complete copy of each new material contract entered into by any Borrower for the sale, lease or other provision of goods or services by such Borrower and for the lease or purchase of circuit capacity by any Borrower, all of which shall be set forth in a form and shall contain such information as is reasonably acceptable to Agent. At Agent’s request, Borrowers shall deliver such information more or less often than described above and such other information with respect to the Collateral, Borrowers or Borrowers’ business or financial condition as Agent may reasonably request from time to time.

(c)Tax Returns. Borrowers shall provide Agent with a copy of all federal tax returns of each Borrower no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

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(d)SEC Filings. Borrowers shall provide Agent with a copy of all reports and other filings made by Borrowers with the Securities and Exchange Commission no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

(e)BT Receivable. Borrowers will submit to Agent, promptly, and in any case not later than (i) one (1) day following each receipt of a BT Receivable Payment and (ii) two (2) Business Days after the end of each month, a reconciliation and report showing any amounts collected with respect of the BT Receivable, the amount left uncollected and, any issues, disputes and offsets with respect to collection of the BT Receivable, and such additional information with respect thereto as requested by Agent.

(f)Monthly Recurring Circuit Revenue and Recurring Circuit Margin. Borrowers will submit to Agent, as soon as available, and in any case not later than thirty (30) days after the end of each month, a summary of Monthly Recurring Circuit Revenue and Recurring Circuit Margin for the Strategic Sourcing Business Unit.

(g)Other Information. Borrowers will notify Agent as promptly as possible of any Default, any receipt by any Borrower of notice from any governmental authority that any Borrower has or may have violated any law, rule or regulation applicable to any Borrower or the terms or conditions of any permit or license any Borrower holds or is required to hold in connection with the conduct of such Borrower’s business, any amendment to any Borrower’s constituent documents and any change in any Borrower’s senior management, and the commencement of any material litigation, claim or action by or against any Borrower.

10. Inspection Rights; Expenses; Etc.

(a)Field Examinations; Inspections. Agent and any of the Lenders, shall have the right without hindrance or delay to conduct field examinations to inspect the Collateral, all other assets of Borrowers or any portion thereof, Borrowers’ books and records and all other aspects of Borrowers’ business, and to examine and make copies of Borrowers’ records, the Collateral and all other assets of Borrowers or any portion thereof, in each case wherever located, and Agent and any of the Lenders may enter upon each Borrower’s premises for such purposes, without notice, during business hours. Borrowers will assist Agent and any of the Lenders in whatever way necessary to make each such examination, and Borrowers agree to pay for such examinations as more fully described on Item 24 of the Addendum. Agent and any of the Lenders may discuss each Borrower’s financial condition with Borrowers’ independent accountants without liability to Agent or any of the Lenders or such accountants. Agent and any of the Lenders shall have full access to all records available to Borrowers from any credit reporting service, bureau or similar service and shall have the right to examine and make copies of any such records. Agent and any of the Lenders may exhibit a copy of this Agreement to such service and such service shall be entitled to rely on the provisions hereof in providing access to Agent and any of the Lenders as provided herein.

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(b)Performance by Agent. Agent may, from time to time at Agent’s option, perform any agreement of any Borrower hereunder which such Borrower fails to perform and take any other action which Agent deems necessary for the maintenance or preservation of any of the Collateral or Agent’s interest therein, and Borrowers agree to reimburse Agent immediately on demand for all of Agent’s expenses in connection with the foregoing (including, without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense is incurred until reimbursed by Borrowers.

11.Rights of Setoff, Application of Payments, Etc. Agent and any of the Lenders will be entitled to hold or set off all sums and all other property of any Borrower at any time to any Borrower’s credit or in Agent’s or any Lender’s possession (or the possession of any of Agent’s or Lender’s Affiliates) by pledge or otherwise or upon or in which Agent or any of the Lenders may have a Lien, as security for any and all of the Obligations. Recourse to the Collateral or other security for the Obligations will not at any time be required and each Borrower hereby waives any right of marshalling that such Borrower may have. Each Borrower’s obligation to pay or repay the Obligations is unconditional. Borrowers agree that, while a Default exists, Agent or any of the Lenders may take such action with regard to the custody and collection of Accounts as Agent or any of the Lenders may deem necessary. Each Borrower agrees that failure to take any action with regard to any given Account will not be unreasonable until and unless Agent receives a written request for specific action from Borrowers’ Agent with regard thereto and fails to respond thereto within a commercially reasonable time. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any of the Lenders from or on behalf of any Borrower, and each Borrower hereby irrevocably agrees that Agent or any of the Lenders shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or any of the Lenders against the Obligations, in such manner and in such order as the Lenders may deem advisable.

12.Attorney-in-Fact. Each Borrower hereby appoints and constitutes Agent as such Borrower’s attorney-in-fact: (a) at any time, (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Agent’s possession and to deposit or otherwise collect the same; (ii) to send verifications of Accounts to Customers; and (iii) to execute in such Borrower’s name any financing statements, affidavits and notices with regard to any and all Lien rights; and (b) while any Default exists, (i) to receive, open, and dispose of all mail addressed to such Borrower; (ii) to notify the postal authorities to change the address and delivery of mail addressed to such Borrower to such address as Agent may designate; (iii) to sign such Borrower’s name on any invoice or bill of lading relating to the Collateral, on drafts against Customers, and notices to Customers; (iv) to sign any agreement or certificate in connection with any insurance policy of any Borrower (including all documentation to receive benefit payments thereunder and to cancel such insurance policy and receive a refund of the unearned premium with respect thereto); and (v) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Agent has any commitment to Borrowers under this Agreement or otherwise (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and other than inchoate indemnification obligations and obligations under the warrant and the registration rights agreement).

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13. Defaults and Remedies.

(a)Defaults. For purposes of this Agreement, “Default” means the occurrence of any of the following events: (i) non-payment when due of any amount payable on any of the Obligations (in the case of non-payment of interest only, including, but not limited to any non-payment of PIK Interest pursuant to Section 3(b), if such non-payment continues one (1) Business Day after the date when due and for the avoidance of doubt, the default margin identified on Item 4 of the Addendum shall be applicable during the non-payment period); (ii) breach of any covenant or failure to perform any agreement or failure to meet any of any Credit Party’s obligations contained herein, in any other Loan Document or in any agreement out of which any of the Obligations arose if such failure continues for five (5) Business Days (excluding Sections 8, 9, 7(f), and 7(k), where no cure period shall be applicable); (iii) any statement, representation, or warranty made in writing in this Agreement, in any other Loan Document or in any other writing or statement at any time furnished or made or deemed furnished or made by any Credit Party to Agent proves to have been untrue in any material respect as of the date furnished or made or deemed furnished or made; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debenture Documents, or any Borrower’s default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 25 of the Addendum (after giving effect to any applicable notice and cure period); (v) suspension of the operation of any Borrower’s present business; (vi) any Borrower becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against any Borrower; (vii) entry of any judgment in excess of the amount set forth on Item 26 of the Addendum against any Borrower or creation, assertion, or filing of any judgment or tax Lien against the property of any Borrower, in each case which remains undischarged for thirty (30) days after such entry or filing; (viii) death or withdrawal of any partner of any Borrower which is a partnership, or dissolution, merger, or consolidation of any Borrower which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any Borrower; (x) sale, transfer or exchange, either directly or indirectly, of a controlling Stock interest of any Credit Party (without limiting the generality of the foregoing, a Default shall exist if (A) Parent shall cease to own, directly or indirectly, 100% of the Stock of any other Borrower or cease to have direct or indirect voting control of any other Borrower (excluding Vanco until the Final Closing), (B) any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty-five percent (25%) of the voting power of all classes of stock of Parent; (xi) appointment of a receiver for any of the Collateral or for any other property in which any Credit Party has an interest; (xii) seizure of any Collateral by any Person other than Agent; (xiii) any person identified on Item 27 of the Addendum shall for any reason cease to hold the office of the applicable Borrower set forth opposite such person’s name on Item 27 of the Addendum (or any such person shall cease to perform the duties generally associated with such office) and a replacement reasonably satisfactory to Agent shall not be appointed within 90 days; (xiv) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a Material Adverse Effect; (xv) payment by any Borrower on the Debenture Indebtedness or any other Subordinated Debt in violation of the Debenture Intercreditor Agreement or any other applicable subordination agreement; (xvi) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any Borrower’s employee pension benefit plans; (xvii) any event of default shall occur under (after giving effect to any applicable notice and cure period) under the Acquisition Documents (other than a termination of the Management Agreement as a result of the Final Closing); (xviii) the Final Closing shall have not occurred by ninety-one (91) days from the Agreement Date; or (xix) except for Transfer Applications (as such term is defined in the Interest Purchase Agreement) to be approved by the applicable regulatory authorities in California, Pennsylvania and Tennessee (which such Transfer Applications shall in any event be approved within one hundred twenty (120) days), any Transfer Application shall not have been approved by the earliest to occur of (A) expiration of the STA Requests unless replaced by a permanent authorization and (B) ninety (90) days from the date of this Agreement.

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(b)Remedies. If a Default occurs and is continuing, in each case without demand or notice to any Borrower, any other Credit Party or any other Person (unless such notice is expressly required hereunder or under applicable law), the Required Lenders may authorize and instruct the Agent to do any one of the following on behalf of the Lenders, all of which such actions are, subject to any applicable law to the extent any such law may not be waived, permitted under this Agreement:

(i)declare the entire principal amount of the Term Loan outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

(ii)notify Customers that the Accounts have been assigned to Agent and that Agent has a security interest therein, collect them directly, and charge the collection costs and expenses to Borrowers’ loan account.

(iii)exercise any right or remedy available to any Borrower under one or more contracts of such Borrower and sell or otherwise dispose of any such contract.

(iv)(A) exercise any of its remedies under any other Loan Document, (B) apply any cash collateral to the Obligations (without limiting the foregoing, Agent may instruct any bank or other financial institution holding any cash, certificate of deposit or other Collateral to pay over such Collateral to Agent), and (C) draw on any letter of credit issued for the benefit of Agent in connection with this Agreement or any other Loan Document and apply the proceeds thereof to the Obligations.

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(v)make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral. Borrowers authorize Agent or any of the Lenders to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any Lien which in Agent’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

(vi)ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

(vii)without regard to any waste, adequacy of the security or solvency of any Borrower, apply for the appointment of a receiver of the Collateral, to which appointment each Borrower hereby consents, whether or not foreclosure or repossession proceedings have been commenced hereunder or under any other Loan Document and whether or not a foreclosure sale or secured party sale has occurred.

(viii)cancel any insurance policy of any Borrower in exchange for a refund of the unearned premium with respect thereto, and each Borrower hereby authorizes any insurance company which has issued any such policy to make such payment directly to Agent for application to the Obligations;

(ix)exercise any of the remedies available to Agent as a secured party under the UCC as in effect in any applicable jurisdiction, or otherwise available to Agent under applicable law. Borrowers agree, upon demand by Agent or any of the Lenders, while a Default exists, to cease the sale or other disposition of the Collateral, except with Agent’s prior written consent, and to assemble at Borrowers’ expense all the Collateral at a convenient place acceptable to Agent. Agent may charge to Borrowers’ loan account and Borrowers will pay Agent upon demand all costs and expenses, including reasonable attorneys’ fees (including fees of attorneys that are regular salaried employees of Agent or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment, compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Agent or against any Borrower concerning any matter growing out of or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Agent pays any state, city, local, federal, or other tax or levy attributable to the Collateral (excluding taxes on income realized by Agent), Borrowers will repay to Agent the amount of tax so paid by Agent. Borrowers agree that Agent may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by Liens prior to Agent’s security interest. Borrowers will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Agent or any of the Lenders.

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(c)Notices. If any notice of intended disposition of the Collateral or of any other act by Agent is required by law or court order and a specific time period is not stated therein, such notice, if given five (5) Business Days before such disposition or act, in accordance with the provisions of Section 16(a), will be deemed reasonably and properly given.

(d)License. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and each Borrower agrees that all of its rights under all licenses and all franchise agreements shall inure to Agent’s benefit.

(e)Remedies Cumulative. Agent’s and any Lender’s rights and remedies under this Agreement and all other Loan Documents shall be cumulative. Agent and any of the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Agent or any of the Lenders of one right or remedy shall be deemed an election, and no waiver by Agent or any of the Lenders of any default on Borrowers’ part shall be deemed a continuing waiver. No delay by Agent or any of the Lenders shall constitute a waiver, election or acquiescence by it.

14. Agent.

(a)Appointment. Each Lender hereby irrevocably appoints and authorizes the Agent to perform the duties of the Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Term Loan outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to the Agent, and, subject to Section 2 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agent shall not have any liability to the Lenders for the Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Term Loan, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Term Loan and Agent Advances, for the Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Credit Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by the Agent of the rights and remedies specifically authorized to be exercised by the Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 14(c) of this Agreement, to take such action as the Agent deems appropriate on its behalf to administer the Term Loan and the Loan Documents and to exercise such other powers delegated to the Agent by the terms hereof or the other Loan Documents (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Term Loan), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of the Term Loan; provided, however, that the Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law.

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(b)Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the making and the continuance of the Term Loan hereunder and shall make its own appraisal of the creditworthiness of the Credit Parties and the value of the Collateral, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Term Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, the Agent shall provide to such Lender any documents or reports delivered to the Agent by the Credit Parties pursuant to the terms of this Agreement or any other Loan Document. If the Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender any time that the Required Lenders have instructed the Agent to act or refrain from acting pursuant hereto.

(c)Rights, Exculpation, Etc.The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agent (i) may treat the payee of the Term Loan as the owner thereof until the Agent receives written notice of the assignment or transfer thereof, pursuant to Section 16(f) hereof, signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including, without limitation, counsel to the Agent or counsel to the Credit Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counselor experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the Agent's Lien thereon, or any certificate prepared by any Borrower in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The Agent shall not be liable for any apportionment or distribution of payments made in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders.

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(d)Reliance.The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

(e)Indemnification. To the extent that the Agent is hot reimbursed and indemnified by any Credit Party, the Lenders will reimburse and indemnify the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including, without limitation, advances and disbursements made pursuant to Section 14(h); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from the Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 14(e) shall survive the payment in full of the Term Loan and the termination of this Agreement.

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(f)Agent Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of the Term Loan. The terms “Lenders” or “Required Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Required Lenders. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers as if it were not acting as the Agent pursuant hereto without any duty to account to the other Lenders.

(g)Successor Agent.

(i) The Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at least 30 Business Days' prior written notice to the Borrowers and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below.

(ii) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Agent, and the Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After the Agent's resignation hereunder as the Agent, the provisions of this Paragraph 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the other Loan Documents.

(iii) If a successor Agent shall not have been so appointed within said 30 Business Day period, the Agent shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above

(h)Collateral Matters.

(i) The Agent may from time to time make such disbursements and advances (“Agent Advances”) which the Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Term Loan and other Obligations or to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 16(j). The Agent Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate of interest then applicable to the Term Loan. The Agent Advances shall constitute Obligations hereunder. The Agent shall notify each Lender and the Borrowers in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation to its obligations pursuant to Section 14(e), each Lender agrees that it shall make available to the Agent, upon the Agent's demand, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to the Agent by such Lender, the Agent shall be entitled to recover such funds on demand from such Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Agent at the Default Rate.

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(ii) The Lenders hereby irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral upon termination of the Total Commitment and payment and satisfaction of the Term Loan and all other Obligations which have matured and which the Agent has been notified in writing are then due and payable; or constituting property being sold or disposed of in the ordinary course of Borrower's or any of its Subsidiaries' business or otherwise in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which neither Borrowers nor any of their Subsidiaries owned any interest at the time the Lien was granted or any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 14(h)(i).

(iii) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 14(h(ii)), each Lender agrees to confirm in writing, upon request by the Agent, the authority to release Collateral conferred upon the Agent under Section 14(h)(ii). Upon receipt by the Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Credit Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent and the Lenders upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Credit Party in respect of) all interests in the Collateral retained by Borrowers or any of their Subsidiaries.

(iv) The Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Credit Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent in this Section 14(h) or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein.

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(i)Agency for Perfection. Each Lender hereby appoints the Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and the Agent and each Lender hereby acknowledges that it holds possession of or otherwise controls any such Collateral for the benefit of the Agent and the Lenders as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. In addition, the Agent shall also have the power and authority hereunder to appoint such other sub-agents as may be necessary or required under applicable state law or otherwise to perform its duties and enforce its rights with respect to the Collateral and under the Loan Documents. Borrowers by their execution and delivery of this Agreement hereby consents to the foregoing.

15.Indemnification.

(a)Borrowers jointly and severally agree to defend, indemnify, and hold harmless Agent and Agent’s and any of the Lender’s participants, directors, officers, employees, Affiliates, representatives, attorneys and agents (each an “Indemnified Person”) from and against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or threatened release of any hazardous materials in connection with any Borrower’s business on, at or from any property at any time owned or operated by any Borrower, including, without limitation, reasonable attorneys’ and consultants’ fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. Without limiting the foregoing and for purposes other than Capstone Investments, Borrowers represent and warrant that there has been no loan broker or investment banker involved in connection with the transactions contemplated hereby, and Borrowers agree to indemnify and hold Agent and any of the Lenders and their participants harmless from any claim of compensation payable to any loan broker or investment banker in connection with the transactions contemplated hereby.

(b)All payments by any Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any and all taxes other than income taxes imposed on Agent or any of the Lenders (“Indemnified Taxes”), unless such Taxes are required by law or the administration thereof to be withheld or deducted. If any Borrower, Agent or Lender or any participant is required by applicable law to deduct or pay any Indemnified Taxes in respect of any payment by or on account of any obligation of a Borrower hereunder or under any other Loan Document, then, if requested by Agent, any Lender or any participant, the sum payable shall be increased by that Borrower by such amount as is necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section), Agent and any of the Lenders and their participants receive an amount equal to the sum Agent and any of the Lenders and such participants would have received had no such deductions or payments been required.

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(c)Borrowers shall indemnify Agent, the Lenders and their participants, within 5 days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, any of the Lenders and their participants and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrowers’ Agent by Agent or any participant shall be conclusive absent manifest error.

(d)As soon as practicable after any payment of Indemnified Taxes by a Borrower to a governmental authority, Borrowers’ Agent shall deliver to Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

16.General Provisions.

(a)Notices. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile transmission, upon transmittal if confirmed by the sender’s facsimile device; provided that in the case of notices to Agent, Agent will be charged with knowledge of the contents thereof only when such notice is actually received by Agent. A telephonic notice to Agent as understood by Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. Notices to Agent or Borrowers will be sent to the addresses set forth on Item 28 of the Addendum, or any other address for Borrowers or Agent of which the other is notified by like notice.

(b)Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Term Loan payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the Term Loan payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Term Loan that is required for the Lenders or any of them to take any action hereunder, (iv) amend the definition of “Required Lenders” or “Pro Rata Share”, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents) or subordinate any Lien granted in favor of the Agent for the benefit of the Lenders (except as otherwise provided in this Agreement and the other Loan Documents), or release the Borrower or (vi) amend, modify or waive this Section 16(b) of this Agreement, in each case, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents.

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(c)No Waiver. No waiver hereunder will be valid unless in writing signed by Required Lenders (or by Agent at the request of the Required Lenders) and then only to the extent therein stated. No delay or failure on Agent’s or any Lender’s part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Agent’s or any Lender’s right to exercise any other right or remedy.

(d)Time of Essence. Time is of the essence of this Agreement.

(e)Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f)Assignments and Participations.

(i) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Credit Party and the Agent and each Lender and their respective successors and assigns; provided, however, that none of the Credit Parties may assign or transfer any of its rights hereunder without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void.

(ii) Each Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Term Loan made by it); provided, however, that (A) such assignment is in an amount which is at least $500,000 or a multiple of $100,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $500,000 or a multiple of $100,000 in excess thereof), (B) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, and such parties shall deliver to the Agent a processing and recordation fee of $5,000 (except the payment of such fee shall not be required in connection with an assignment by a Lender to an Affiliate of such Lender or Related Fund of such Lender), and (C) no written consent of the Agent shall be required in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Agent (or such shorter period as shall be agreed to by the Agent and the parties to such assignment), (1) the assignee thereunder shall become a “Lender” hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (2) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything contained to the contrary in this Section 16(f)(ii), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agent; provided, that (x) the Borrowers and the Agent may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned until such Lender and its assignee shall have executed and delivered an Assignment and Acceptance to the Agent for recordation and (y) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agent or any other Person shall not affect the legality, validity or binding effect of such assignment.

45

(iii) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (A) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (B) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any of its Subsidiaries or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (C) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (D) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (E) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (F) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(iv) The Agent shall, on behalf of the Borrowers, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Term Loan (the “Registered Loans”) owing to each Lender from time to time. Other than in connection with an assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender shall maintain a register comparable to the Register.

46

(v) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any promissory notes subject to such assignment, the Agent shall, if the Agent consents to such assignment and if such Assignment and Acceptance has been completed (A) accept such Assignment and Acceptance and (B) record the information contained therein in the Register.

(vi)A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register) (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register), together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same) on the Register, the Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.

(vii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the “Participant Register”). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(viii) Any foreign Person who purchases or is assigned or participates in any portion of such Registered Loan shall comply with Section 2(o).

(ix) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Term Loan made by it); provided, that (A) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (C) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (1) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Term Loan, (2) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Term Loan or the fees payable under this Agreement, or (3) actions directly effecting a release of all or a substantial portion of the Collateral or any Credit Party (except as set forth in Section 14(h) of this Agreement or any other Loan Document).

47

(g)Governing Law; Submission to Jurisdiction, Service, Etc. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States Federal Court sitting in New York, New York or any New York state court sitting in New York, New York in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents, and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Each Borrower waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Parent at Borrowers’ address for notices pursuant to this Agreement, and service so made shall be deemed to be completed with respect to all Borrowers five (5) days after the same shall have been so deposited in the United States mails. Nothing herein shall limit the right of Agent or any of the Lenders to bring proceedings against any Borrower or any Affiliate of any Borrower in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent or any of the Lenders or any other holder of any Obligations, or any Affiliate of Agent or any of the Lenders or any other holder of any Obligations, involving, directly or indirectly, any matter in any way arising out of, related to or connected with any Loan Document shall be brought only in a United States Federal Court or New York state court sitting in New York, New York. Nothing in this Agreement shall be deemed or operate to affect the right of Agent or any of the Lenders to serve legal process in any other manner permitted by law or to preclude the enforcement by Agent or any of the Lenders of any judgment or order obtained in such forum or the taking of any action under this Agreement or any other Loan Document to enforce same in any other appropriate forum or jurisdiction.

(h)Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS, EACH LENDER AND AGENT HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. EACH BORROWER, EACH LENDER AND Agent ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

48

(i)Waiver of Hearing. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING AGENT, ANY OF THE LENDERS, THEIR SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH Agent OR ANY OF THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT, IF Agent OR ANY OF THE LENDERS FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW.

(j)Expenses. Borrowers shall pay on demand all of Agent’s and any of the Lender’s costs and expenses in connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of this Agreement, including the reasonable fees and out-of-pocket expenses of Agent’s and any of the Lender’s counsel, in each case whether incurred on, prior or subsequent to the Agreement Date. In addition, Borrowers shall pay any and all stamp and other taxes and recording and filing fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. All provisions in this Agreement providing for the payment or reimbursement of Agent’s or any of the Lender’s attorneys’ fees and expenses include, without limitation, such fees and expenses incurred pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code.

(k)Execution in Counterparts; Execution by Fax or E-Mail; Waiver of Acceptance. This Agreement may be executed in separate counterparts, all of which shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail shall be equally as effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Any party delivering an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail also shall deliver an original executed counterpart of this Agreement or such other Loan Document, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement or such other Loan Document. To the fullest extent permitted by applicable law, each Borrower waives notice of Agent’s and any of the Lender’s acceptance of this Agreement and the other Loan Documents.

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(l)No Third-Party Beneficiaries. Except as expressly set forth herein, neither (i) any stockholder or owner of any other equity interest in any Borrower, (ii) any of Borrower’s employees or creditors (other than Agent and any of the Lenders and their Affiliates), nor (iii) any other Person claiming by or through any Borrower shall be entitled to rely on this Agreement or have any rights, remedies or claims against Agent or any of the Lenders or any Affiliates of them under or in connection with this Agreement.

(m)Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Agent, the Lenders and Borrowers and supersede all prior agreements and understandings relating to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

50

IN WITNESS WHEREOF, the undersigned have executed this Term Loan and Security Agreement as of the day and year first above written.

Borrowers:

CAPITAL GROWTH SYSTEMS, INC.

By:

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:

Name:

Title:

CENTREPATH, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:

Name:

Title:

FNS 2007, INC.

By:

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL CAPACITY DIRECT, LLC

By:

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:

Name:

Title:

52

Agent and Lender:

ACF CGS, L.L.C.

By:

Name:

Title:

EX-10.9 10 v132473_ex10-9.htm

SECURED TERM LOAN PROMISSORY NOTE

$8,500,000 November __, 2008 Chicago, Illinois

FOR VALUE RECEIVED, the undersigned, CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein collectively as the “Borrowers”), jointly and severally promise to pay to the order of ACF CGS, L.L.C., a Delaware limited liability company as administrative agent (the “Agent”), at the office of the Agent located at 570 Lexington Avenue, 40^th Floor New York, NY 10022 or such other office as the holder hereof may from time to time designate in writing, in lawful money of the United States of America and in immediate available funds, the principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), together with interest from and after the date hereof on the unpaid principal balance outstanding at a variable rate per annum as set forth in the Term Loan and Security Agreement dated as of even date herewith, between Agent, Borrowers and Lender and the other lenders from time to time party thereto (as amended from time to time, the “Term Loan Agreement”).

This Secured Term Loan Promissory Note (the “Note”) is issued pursuant to the Term Loan Agreement and is entitled to all of the benefits and security of the Term Loan Agreement. All of the terms, covenants and conditions of the Term Loan Agreement and the Loan Documents (as defined in the Term Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Term Loan Agreement.

The rate of interest in effect hereunder shall be calculated with reference to the Section 3, in the Term Loan Agreement. The interest due hereunder shall be computed in the manner provided in the Term Loan Agreement.

The principal and accrued interest on this Note shall be due and payable on the dates and in the manner set forth in the Term Loan Agreement.

Notwithstanding the forgoing, the entire unpaid principal balance and any accrued interest on this Note shall be due and payable immediately upon any acceleration of the indebtedness evidenced by this Note by the Lender pursuant to the Term Loan Agreement or upon any termination of the Term Loan Agreement.

This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2(c) of the Term Loan Agreement. Borrowers may also prepay this Note, in whole or in part, in the manner provided in Section 2(d)of the Term Loan Agreement.

Upon the occurrence of an Default, the Agent and the Lenders shall have all rights and remedies set forth in Section 13 of the Term Loan Agreement and the other Loan Documents.

Time is of the essence with respect to payments due under this Note. To the fullest extent permitted by applicable law, the Borrowers and every endorser and guarantor (if any) of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Agent or any of the Lenders in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Agent or any of the Lenders of any right or remedy preclude any other right or remedy. Agent or any of the Lenders, at their option, may enforce their rights against any collateral securing this Note without enforcing their rights against the Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrowers. The Borrowers agree that, without releasing or impairing Borrowers’ liability hereunder, Agent, for the benefit of the Lenders may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note.

THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESSES SPECIFIED IN ITEM 28 OF THE ADDENDUM TO THE TERM LOAN AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

2

IN WITNESS WHEREOF, the undersigned have executed this Note to be duly executed and delivered by an officer thereunto duly authorized as of the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:  

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:  

Name:

Title:

CENTREPATH, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:  

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:  

Name:

Title:

3

FNS 2007, INC.

By:  

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:  

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL

CAPACITY DIRECT, LLC

By:  

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:  

Name:

Title:

EX-10.10 11 v132473_ex10-10.htm

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (OR SUCCESSOR RULE THERETO) OR (III) UNLESS THE SALE, ASSIGNMENT OR TRANSFER MEETS THE REQUIREMENT OF REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

CAPITAL GROWTH SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:[_____]	Number of Shares: 12,000,000
	Date of Issuance:November ___, 2008

Capital Growth Systems, Inc., a Florida corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ACF CGS, L.L.C., a Delaware limited liability company, the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Twelve Million (12,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the "Warrant Shares") at the Warrant Exercise Price (as defined in Section 1(b) below. Notwithstanding anything to the contrary contained herein, prior to the “Amendment Date” as defined below, this Warrant shall only be exercisable into that number of Warrant Shares that are authorized and reserved for issuance hereunder. For purposes hereof, the “Amendment Date” shall be the first date after the date of this Warrant that the Company files articles of amendment to its articles of incorporation (the “Amendment”) with the Florida Secretary of State increasing its authorized Common Stock to an amount no less than 600,000,000 shares (before giving effect to any forward or reverse split that may occur on or before the date of such filing).

SECTION 1

(a)Loan and Security Agreement. This Warrant was issued pursuant to that certain Loan and Security Agreement, dated as of November__, 2008, by and among the Company, Global Capacity Group, Inc., a Texas corporation (“GCG”), Centrepath, Inc., a Delaware corporation (“Centrepath”), 20/20 Technologies, Inc., a Delaware corporation (“20/20 Inc.”), 20/20 Technologies I, LLC, a Delaware limited liability company (“20/20 LLC”), Nexvu Technologies, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), Magenta Netlogic Limited, a United Kingdom corporation (“Magenta”), Capital Growth Acquisition, Inc., a Delaware corporation (“CG Acquisition”), and Holder (as such agreement may be amended from time to time as provided in such agreement, the "Loan Agreement").

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i)“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which banks in New York, New York are otherwise closed for transacting business with the public.

(ii)"Common Stock" means (i) the Company's common stock, $0.0001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(iii)"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)"Expiration Date" means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(v)"Option" means any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(vi)"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

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(vii)"Principal Market" means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.

(viii)"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Holder, as such agreement may be amended, restated or modified and in effect from time to time.

(ix)"Securities Act" means the Securities Act of 1933, as amended.

(x)"Trading Day" means any day on which the Common Stock is traded on the Principal Market; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(xi)"Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xii)"Warrant Exercise Price" shall be equal to, with respect to any Warrant Share, $0.24, subject to adjustment as hereinafter provided.

(xiii)"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) ("Bloomberg") through its "Volume at Price" functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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SECTION 2. EXERCISE OF WARRANT

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of the Holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the second (2nd) Business Day (the "Warrant Share Delivery Date") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the "Exercise Delivery Documents"), (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC as they would relate to this Warrant, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the "Deemed Issuance Date"), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder's Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder. The Company shall cause at its sole and exclusive expense the investment banking firm to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm's determination or calculation, as the case may be, shall be deemed conclusive absent error.

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(b)If this Warrant is submitted for exercise, as may be required by Section 2(f), and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the "Warrant Delivery Date") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Loan Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall: (i) cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a); or (ii) cash damages accrue in the aggregate to an amount exceeding twelve percent (12%) of the product of the number of shares of Common Stock subject to this Warrant and the original Exercise Price for the Common Stock subject to this Warrant. Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Loan Agreement), 110% of the amount that (A) the Holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.

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(e)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

  B

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being exercised;

B = the arithmetic average of the Weighted Average Price of the Common Stock on each of the five (5) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(f)Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:

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ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

SECTION 3. COVENANTS AS TO COMMON STOCK

The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant; provided, however, that the Company shall effect the Amendment no later than 180 days following the date of this Warrant. Should the Company fail to effect the Amendment within such time period, then the number of shares to be purchased under this warrant shall be increased by 2% for each 30 day period thereafter that the Company fails to effect the Amendment.

(d)If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such securities exchange, or quotation system or market.

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(e)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.0001 per share, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets.

SECTION 4. TAXES

The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

SECTION 5. WARRANT HOLDER NOT DEEMED A SHAREHOLDER

No Holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

SECTION 6. REPRESENTATIONS OF HOLDER

The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.

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SECTION 7. OWNERSHIP AND TRANSFER

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement to the extent provided therein and the initial Holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement.

SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Warrant Date (as defined in Section 12), the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company), for a consideration per share less than a price (the "Applicable Price") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share; provided however, no such adjustment shall be made to the Warrant Exercise Price as a result of any "Exempted Issuance." For purposes hereof, "Exempted Issuance" means any issuance or deemed issuance of shares of Common Stock: (i) pursuant to an Approved Stock Plan, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed the greater of one percent (1.0%) of the number of outstanding shares of Common Stock at the end of the immediately preceding calendar year or the number of shares currently authorized for issuance pursuant to the Company’s 2008 Long Term Incentive Plan; or (ii) that is deemed to constitute an “Exempt Issuance” as that term is defined in the form of Securities Purchase Agreement dated on or about the date of this Warrant calling for the purchase of up to $10,500,000 of convertible debentures with warrants (the proceeds of which are to be used in part for the purchase of the limited liability company interests (“LLC Interests”) of Vanco Direct USA, LLC (the “Sub Debt Purchase Agreement”); (iii) the issuance of the securities subject to the Sub Debt Purchase Agreement or the issuance of securities with respect to a convertible note for up to $4,000,000 that may be issued to the seller of the LLC Interests to the Company; or (iv) that is pursuant to an “Excluded Transaction.” For purposes hereof, the term "Approved Stock Plan" means any employee benefit plan that has been approved by the Board of Directors and stockholders of the Company, pursuant to which shares of Common Stock may be issued solely to consultants, employees, officers and/or directors for services provided to the Company or any of its Subsidiaries (and not, for the avoidance of doubt, for equity capital raising purposes). For purposes hereof, an "Excluded Transaction" shall be any issuance of equity securities of the Company (or warrants, options, convertible rights or other rights to acquire equity securities): (A) to a provider of goods or services to the Company, in connection with an acquisition of a business or assets; or (B) in connection with the outstanding rights of any holder of an option, warrant or convertible security that is issued and outstanding on or before the date of this Warrant; provided that such option, warrant or convertible security is not amended or adjusted after the date of this Warrant to increase the number of securities into which it is convertible, exchangeable or exercisable or to decrease the exercise, exchange or conversion price. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

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(b)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price other than pursuant to an Excluded Transaction or Exempted Issuance), the following shall be applicable:

(i)Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

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(ii)Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed after the date of issuance of this Warrant in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at least as of any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price), the following shall be applicable:

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(i)Calculation of Consideration Received. In case any Options are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the Black-Scholes Value (as defined below) of such Options (the greatest of (I), (II) and (III), the "Option Consideration") and, for purposes of applying the provisions of this Section 8, the Option Consideration shall be allocated pro rata among all the shares of Common Stock issuable upon exercise of such Options to determine the consideration per each such share of Common Stock and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Common Stock represented thereby), less the Option Consideration. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

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(iii)Black-Scholes Value. The "Black-Scholes Value" of any Options shall mean the sum of the amounts resulting from applying the Black-Scholes pricing model to each such Option, which calculation is made with the following inputs: (i) the "option striking price" being equal to the lowest exercise price possible under the terms of such Option on the date of the issuance of such Option (the "Valuation Date"), (ii) the "interest rate" being equal to the Federal Reserve US H.15 T Note Treasury Constant Maturity 1 Year rate on the Valuation Date (as reported by Bloomberg through its "ALLX H15T" function (accessed by typing "ALLX H15T" [GO] on a Bloomberg terminal, and inserting the date of the Valuation Date and then looking at the row entitled "Treas Const Mat 1 Year" under the column entitled "Previous Value")), or if such rate is not available then such other similar rate as mutually agreed to by the Company and the Holder, (iii) the "time until option expiration" being the time from the Valuation Date until the expiration date of such Option, (iv) the "current stock price" being equal to the Weighted Average Price of the Common Stock on the Valuation Date, (v) the "volatility" being the 100-day historical volatility of the Common Stock as of the Valuation Date (as reported by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to zero. Within three (3) Business Days after the Valuation Date, each of the Company and the Holder shall deliver to the other a written calculation of its determination of the Black-Scholes Value of the Options. If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes Value of the Options within five (5) Business Days of the Valuation Date, then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Valuation Date. The Company shall cause such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after the Valuation Date. Such investment banking firm's calculation of the Black-Scholes Value of the Options shall be deemed conclusive absent error. The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

(d)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case:

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(i)the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the Holder shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the amount of the assets that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

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(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE

(a)In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder, without regard to any limitation on exercise thereof) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

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SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT

If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

SECTION 11. NOTICE

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company: Capital Growth Systems, Inc.

500 W. Madison - Suite 2060

Chicago, Illinois 60661

Attention: Chief Executive Officer

Facsimile: (312) 673-2422

with a copy to: Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Attention: Mitchell D. Goldsmith

Facsimile: (312) 527-3194

If to Holder: ACF CGS, L.L.C.

c/o Archer Capital Management

570 Lexington Avenue - 40^th Floor

NY, NY 10022

Attention: Gary Katz

Facsimile: 212-319-1033

With a copy to: Jeffrey H. Wolf, Esq.

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Facsimile No.: (310) 310-6001

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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SECTION 12. DATE

The date of issuance of this Warrant is the date first set forth above (the "Warrant Date"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

SECTION 13. AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW

The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York.

SECTION 15. RULES OF CONSTRUCTION

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) each accounting term not otherwise defined in this Warrant has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word "including" in this Warrant shall be by way of example rather than limitation.

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SECTION 16. NO EFFECT UPON LENDING RELATIONSHIP

Anything herein contained to the contrary notwithstanding, nothing contained in this Warrant shall affect, limit or impair the rights and remedies of Holder, any of its affiliates, or its successors and transferees, or any other lender in their respective capacities as lenders to the Company or any of its Subsidiaries (each, a "Subject Person") pursuant to any agreement under which the Company or any of its subsidiaries has borrowed money. Without limiting the generality of the foregoing, no Subject Person, in exercising its rights as a lender, shall have any duty to consider (i) its status as a direct or indirect shareholder or other equityholder of the Company, (ii) the interests of the Company or any of its subsidiaries, or (iii) any duty it may have to any other direct or indirect shareholder or other equityholder of the Company, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of __________, 2008.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THIS WARRANT

CAPITAL GROWTH SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.Form of Warrant Exercise Price. The holder intends that payment of the Warrant Exercise Price shall be made as:

____________a "Cash Exercise" with respect to ___________________ Warrant

Shares; and/or

____________a "Cashless Exercise" with respect to ______________ Warrant

Shares (to the extent permitted by the terms of the Warrant).

2.Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number (if electronic book entry transfer):

Date:

 Name of Registered Holder

 By:

 Name:

 Title:

A-1

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock & Transfer Company or the currently existing transfer agent if other than such entity ("Transfer Agent") to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by Transfer Agent.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Capital Growth Systems, Inc., a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated: ____________________, 200___

 Name:

 Title:

B-1

EX-10.11 12 v132473_ex10-11.htm

Exhibit 10.11

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November ____, 2008 between Capital Growth Systems, Inc., a Florida corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Administrator” means Vanco plc (in administration).

“Administrator Debenture” means the debenture in the form of Exhibit A-1 hereto, issuable to the administrator pursuant to the terms of the ILPA (as defined below) in the original principal amount of $3,000,000.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Archer Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and the Archer Purchasers in the form of Exhibit H-1 attached hereto

“Archer Purchasers” means the purchasers of the securities issued pursuant to the Loan and Security Agreement dated as of the date hereof by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Loan Agreement”).

“Authorized Share Approval” means (i) the vote by the stockholders of the Company to approve an amendment to the Company’s articles or certificate of incorporation that increases the number of authorized shares of Common Stock to at least 600,000,000 shares of Common Stock (the “Amendment”) and (ii) the filing by the Company of the Amendment with the Secretary of State of the State of Florida and the acceptance of the Amendment by the Secretary of State of the State of Florida.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

“Closing Statement” means the Closing Statement in the form Annex A attached hereto.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive Common Stock.

“Company Counsel” means Shefsky & Froelich, with offices located at 111 E. Wacker Drive, Suite 2800, Chicago, Illinois 60601.

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures” means the Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

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“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).

“Effective Date” means the earlier of (a) the effective date of a Registration Statement and (b) the date that all of Underlying Shares issuable pursuant to the Transaction Documents may be sold or are eligible for sale under Rule 144, without volume or manner-of-sale restrictions.

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder (including but not limited to any issuance of Common Stock with respect to the redemption of the Debentures and the debentures issued pursuant to the March Purchase Agreement or payment of any liquidated damages with respect to the Debentures, the Warrants and this Agreement and the debentures and warrants issued pursuant to the March Purchase Agreement) and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) for purposes of Section 4.12 only, an issuance of Common Stock or Common Stock Equivalents, without registration rights, for cash consideration, to the global carrier referenced in the Company’s press release dated February 20, 2008, provided, however, any such issuance of Common Stock Equivalents shall be expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (e) for purposes of Sections 4.12 and 4.13 only, securities (including shares of Common Stock, warrants and Common Stock Equivalents) issued in connection with the Archer Loan Agreement the terms of which are described in the Disclosure Schedules hereto and the Administrator Debenture.

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“FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“March Purchase Agreement” means the Securities Purchase Agreement, dated March 11, 2008, by and among the Company and each of the purchasers signatories thereto for the issuance of debentures and warrants.

“March Purchasers” means the purchasers of the securities issued pursuant to the March Purchase Agreement and any successors in interest to any of the debentures and warrants issued pursuant to the March Purchase Agreement (by way of assignment or cancellation and reissuance of the same).

“March Purchasers Intercreditor Agreement” means the intercreditor agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and each of the March Purchasers in the form of Exhibit H-2 attached hereto

“March Registration Rights Agreement” means the Registration Rights Agreement, dated March 11, 2008, by and among the Company and each of the March Purchasers.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

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“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.65.

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

“Registration Statement” means a registration statement filed pursuant to Section 4.18, registering the resale, by the Purchasers, of all of the Underlying Shares, or any portion thereof.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit E attached hereto.

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“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees, the Intercreditor Agreement, and any other documents and filing required thereunder in order to grant the Purchasers a security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds or, with respect to (i) Aequitas Catalyst Fund, LLC - Series C (“Aequitas”), through the conversion of its bridge note dated September 29, 2008, in the original principal amount of $500,000 (the “Aequitas Note”) to a debenture and warrant hereunder and (ii) Capstone Investments (“Capstone”), through the irrevocable waiver of its right to all or a portion of its cash fee of 7% of the cash proceeds hereunder and under the Archer Loan Agreement.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F attached hereto.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

6

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Security Agreement, the Subsidiary Guarantee, the Archer Intercreditor Agreement, the March Purchasers Intercreditor Agreement, the Voting Agreement, the Consent, Waiver and Amendment Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current transfer agent of the Company with a mailing address of 17 Battery Place, New York, New York 10004 and a facsimile number of 212-509-5150, and any successor transfer agent of the Company.

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures.

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

“Voting Agreement” means the written agreement, in the form of Exhibit G attached hereto, of all of the officers, directors, and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favor of the Authorized Share Approval, amounting to, in the aggregate, at least 50.1% of the issued and outstanding Common Stock.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years from the date of the Authorized Share Approval, in the form of Exhibit C attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to $17,325,000, in the aggregate, in principal amount of the Debentures (with an aggregate Subscription Amount of up to $10,500,000). Each Purchaser shall deliver to the Company via wire transfer or a certified check, immediately available funds equal to its cash Subscription Amount (and, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement) and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the parties shall mutually agree.

2.2Deliveries.

(a)On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii)a legal opinion of Company Counsel, in substantially the form of Exhibit D attached hereto;

(iii)a Debenture with a principal amount equal to such Purchaser’s Subscription Amount multiplied by 1.65, registered in the name of such Purchaser;

(iv)the Voting Agreements, duly executed by all officers, directors and 10% stockholders of the Company;

(v)a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 75% of such Purchaser’s Subscription Amount divided by $0.24, with an exercise price equal to $0.24, subject to adjustment therein;

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(vi)the Security Agreement, duly executed by the Company, VDUL (as defined below) and each Subsidiary, along with all of the Security Documents (including, without limitation, documents and agreements evidencing the Purchasers’ security interest in the assets of the Company’s Subsidiary that is organized in the UK), including the Subsidiary Guarantee, duly executed by the parties thereto;

(vii)the Archer Intercreditor Agreement, duly executed by the Company and the Archer Purchasers; and

(viii)the March Purchasers Intercreditor Agreement, duly executed by the Company and each of the March Purchasers.

(b)On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s cash Subscription Amount by wire transfer to the account as specified in writing by the Company (or, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement);

(iii)the Security Agreement duly executed by such Purchaser;

(iv)the Archer Intercreditor Agreement duly executed by such Purchaser; and

(v)the March Purchasers Intercreditor Agreement duly executed by such Purchaser.

2.3Closing Conditions.

(a)The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

(iii)the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

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(b)The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii)the delivery of a lock-up agreement, in the form attached hereto as Exhibit J, duly executed by each of the Administrator and Capstone, the Company and the Transfer Agent;

(iv)all existing debtholders of the Company and its Subsidiaries, with the exception of the Excepted Debtholders, as that term is defined herein (each, an “Existing Debtholder” and together, the “Existing Debtholders”), shall each have executed and delivered to the Purchasers an agreement whereby each Existing Debtholder shall agree, that all amounts owed to it shall not mature or require payments of any nature prior to the repayment of all amounts due under the Debentures, and whereby such indebtedness is made expressly subordinate in right of payment to the indebtedness evidenced by the Debentures, as reflected in a written agreement reasonably acceptable to, and approved by, the Purchasers. The term the Excepted Debtholders includes the March Purchasers, the Archer Purchasers and such other debtholders described on Schedule 2.3(b)(iii)attached hereto (together, the “Excepted Debtholders”);

(v)the delivery of a consent, waiver and amendment agreement, in the form attached hereto as Exhibit I duly executed by each March Purchaser (the “Consent, Waiver and Amendment Agreement”);

(vi)the Interest and Loan Purchase Agreement (“ILPA”) among Capital Growth Acquisition, Inc. (“Acquisition”), Vanco Direct USA, LLC (“VDUL”) and the Administrators for the estate of Vanco, plc (“Administrators”) shall have been duly executed on terms and conditions described in the Disclosure Schedules hereto, and the transactions consummated thereunder shall have been consummated subject only to the conveyance of the VDUL limited liability company interest, which shall be subject only to certain post-closing state regulatory filings described on Schedule 3.1(m)(A) hereto or the passage of time as further described on the Disclosure Schedules hereto;

(vii)the closing of the Archer Loan Agreement, with gross proceeds of not less than $8,500,000 to the Company and its Affiliates, shall have been consummated prior to or contemporaneous with the Closing hereunder on terms and conditions described in the Disclosure Schedules (provided, the aggregate principal amount of the Senior Debt shall not exceed $10,500,000), and the Company shall have delivered evidence thereof to the Purchasers;

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(viii)there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

(ix)from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

(a)Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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(c)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(d)No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents and the consummation by it to which it is a party of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) the filings set forth in Schedule 3.1(e) required under the ILPA to obtain necessary FCC and state commerce commission approvals to the change in control of VDUL (collectively, the “Required Approvals”).

(f)Issuance of the Securities. The Securities (other than the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Subject only to the Authorized Share Approval, the Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

(g)Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act or as reflected on Schedule 3.1(g). Except as set forth on Schedule 3.1(g)(i), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g)(ii), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth on Schedule 3.1(g)(iii), no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as described on Schedule 3.1(h), the Company has never been an issuer subject to Rule 144(i) under the Securities Act. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Material Changes. Other than as set forth on Schedule 3.1(i), since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice or in connection with the transaction contemplated by this Agreement and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement and the other transactions contemplated by the Transaction Documents or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

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(j)Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as set forth on Schedule 3.1(j). There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(k)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. Except as disclosed on Schedule 3.1(k), the Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(l)Compliance. Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(m)Regulatory Permits. Except as disclosed on Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n)Title to Assets. Except for the liens set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

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(o)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(p)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in the amount of $10.0 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q)Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

(r)Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on Schedule 3.1(r), the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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(s)Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, except as set forth on Schedule 3.1(s). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(t)Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

(v)Registration Rights. Other than the persons specified on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

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(w)Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(x)Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(y)Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Archer Loan Agreement and the ILPA, the material terms of which are set forth on Schedule 3.1(y) (all of which shall be publicly disclosed contemporaneous with the disclosure of this Agreement as required by Section 4.6), the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

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(z)No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(aa)Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the projected cash flow of the Company from its future operations, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

(bb)Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

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(cc)No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(dd)Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ee)Accountants. The Company’s present accounting firm is Plante Moran. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act. The Company has advised that it is in the process of retaining a new accounting firm. The Company warrants that it shall retain a new accounting firm duly registered as a public accounting firm as required by the Exchange Act and that such new firm shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending December 31, 2008.

(ff)Seniority. Except for the Senior Debt, as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby), or as otherwise set forth on Schedule 3.1(ff).

(gg)No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and except as noted in Schedule 3.1(gg), the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

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(hh)Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(ii)Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

(jj)Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

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3.2Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)Organization; Authority. Such Purchaser if an entity, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which a Purchaser is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Notwithstanding the foregoing, Midsummer Investment Ltd. (“Midsummer”) has been approached by an institutional accredited investor that was introduced to Midsummer by the placement agent for this transaction (the “Potential Purchaser”) about purchasing a portion of its Securities purchased hereunder after the Closing in a private transaction.  Midsummer represents there are no present understandings or agreements to transfer any of its Securities to such Potential Purchaser, however, any such transfer otherwise in accordance with the provisions of Section 4.1(a) hereof shall in no way be deemed a breach of Midsummer’s representations and warranties hereunder or under any other Transaction Document.

(c)Purchaser Status. At the time such Purchaser was offered the Securities, such Purchaser was, and as of the date hereof such Purchaser is, and on each date on which such Purchaser exercises any Warrants or converts any Debentures such Purchaser will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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(d)Experience of Such Purchaser. Such Purchaser, either alone or together with his or its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

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(a)The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities , including, if the Securities are subject to registration pursuant to Section 4.18, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

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(c)Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including a Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if promptly after the Effective Date required by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144, without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)(i)In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the second Trading Day following the Legend Removal Date (the “Legend Removal Deadline”) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

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(ii)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.1(d)(i) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.1(d)(i) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Legend Removal Deadline, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(e)Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

4.2Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information; Public Information.

(a)If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60^th calendar day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. Upon a cashless exercise of the Warrant, the holding period for purpose of Rule 144 shall tack back to the original date of issuance of such Warrants.

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(b)At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(c)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.3(b) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.3(b) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Public Information Failure, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

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4.4Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5Conversion and Exercise Procedures. Each of the Purchasers agrees the he/she/it will not convert their Debenture or exercise their Warrant until such time as the Authorized Share Approval has occurred. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debenturesset forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.6Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with (i) any registration statement contemplated by Section 4.18 of this Agreement and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.7Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

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4.8Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

4.9Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.

4.10Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

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4.11Reservation and Listing of Securities.

(a)Following the Authorized Share Approval, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents at least equal to the Required Minimum as of such date.

(b)If, on any date after the date of the Authorized Share Approval, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

(c)The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing and (iv) maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

(d)In addition, the Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date following the date hereof, and in any event within 75 calendar days following the Closing Date, for the purpose of obtaining the Authorized Share Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. In addition, the Company agrees to use its best efforts to promptly respond to any comments the Commission may have with respect to any preliminary proxy statement. If the Company does not obtain the Authorized Share Approval at the first meeting, the Company shall call a meeting every 30 days thereafter to seek Authorized Share Approval until the earlier of the date the Authorized Share Approval is obtained or the Debentures and Warrants are no longer outstanding.

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4.12Participation in Future Financing.

(a)Other than the Senior Debt, from the date hereof until the date that the Debentures are no longer outstanding, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a combination of units hereof) (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

(b)At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

(c)Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5^th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

(d)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Participation Maximum, Company may effect the remaining portion of the Participation Maximum of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

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(e)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

(f)The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 Trading Days after the date of the initial Subsequent Financing Notice.

(g)Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

4.13Subsequent Equity Sales.

(a)From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, a Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

(b)From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

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(c)Unless and until the Authorized Share Approval is obtained, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents. So long as the Debentures or Warrants are outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $0.24 (subject to adjustment for forward and reverse stock splits, stock dividends and combinations and similar transactions affecting the Common Stock after the Closing Date). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(d)Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

4.14Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.15Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will execute any Short Sales during the period commencing with the Discussion Time and ending at such time the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6; provided, however, each Purchaser agrees, severally and not jointly with any other Purchasers, that they will not enter into any Net Short Sales (as hereinafter defined) from the period commencing on the Closing Date and ending on the date that is the earlier of (x) the 6-month anniversary of the Closing Date or (y) the date that such Purchaser no longer holds any Debentures.  For purposes of this Section 4.15, a “Net Short Sale” by any Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by such Purchaser.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by the Purchaser, Underlying Shares that have not yet been converted pursuant to the Debentures and Warrant Shares that have not yet been exercised pursuant to the Warrants shall be deemed to be held long by the Purchaser, and the amount of shares of Common Stock held in a long position shall be all unconvertedUnderlying Sharesand unexercised Warrant Shares (ignoring any exercise limitations included therein) issuable to such Purchaser on such date, plus any shares of Common Stock or other Common Stock Equivalents (other than the unconverted Underlying Shares and unexercised Warrant Shares described in this sentence) otherwise then held by such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

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4.16Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

4.17Capital Changes. Until the one year anniversary of the Effective Date, other than in connection with a Permitted Reverse Stock Split (as defined below), the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of the Common Stock that is approved on or before April 15, 2009 for purposes of satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and is effective contemporaneous with, or immediately prior to, the approval of the Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

4.18Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then, subject to SEC Guidance (as defined in the March Registration Rights Agreement) the Company shall send a written notice of such determination to each Purchaser and, if within

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ten calendar days after the date of delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such Registration Statement all or any part of the Underlying Shares as the Purchaser requests to be registered so long as such Underlying Shares are proposed to be disposed of in the same manner as those securities set forth in the Registration Statement, subject to pro rata cutback of the Purchasers (based upon the respective amounts of their Underlying Shares that are proposed for registration) and all other security holders proposed to be included in such Registration Statement, to the extent that all of the shares proposed for registration shall not be permitted due to SEC Guidance with respect to Rule 415. The Company shall use its best efforts to cause any Registration Statement to be declared effective by the Commission as promptly as is possible following it being filed with the Commission and to remain effective until all Underlying Shares subject thereto have been sold. All fees and expenses incident to the performance of or compliance with this Section 4.18 by the Company shall be borne by the Company whether or not any Underlying Shares are sold pursuant to the Registration Statement. The Company shall indemnify and hold harmless the Purchasers, the officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them, each person who controls the Purchasers (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the officers, directors, members, shareholders, partners, agents and employees of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any prospectus included therein or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 4.18, except to the extent, but only to the extent, that such untrue statements or omissions referred to in (i) above are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser’s proposed method of distribution of Underlying Shares and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto. The rights of the Purchasers under this Section 4.18 shall survive until all Underlying Shares have been either registered under a Registration Statement or been sold pursuant to an exemption to the registration requirements of the Securities Act.

4.19Removal of Subordination Legend. Following the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), within 3 Business Days of a written request from any Purchaser, the Company hereby agrees to issue such Purchaser a replacement Debenture, without the restrictive legend referencing the Archer Intercreditor Agreement, and otherwise in the same form of such Purchaser’s Debenture.

4.20Certain Permitted Payments under the Archer Intercreditor Agreement. In connection with “Permitted Payments” (as defined in the Archer Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder,no less than ten (10) days prior to the due date of such Quarterly Redemption Amounts (as defined in the Debentures) as described in such Section, the Company agrees to deliver each Purchaser a written certification of compliance with the financial covenants under the Archer Loan Agreement for the month prior to the date such Quarterly Redemption Amount is due, and, if requested in writing by a Purchaser and subject to Section 4.8 hereunder, calculations in reasonable detail evidencing compliance with such financial covenants.

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4.21Other Agreement(s). From the date hereof until the two year anniversary of the Closing Date, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents to Patrick Shutt, George King or Robert Pollan, or any of their respective Affiliates. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 21, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse Midsummer Capital, LLC (“Midsummer”) the non-accountable sum of $75,000 for its legal fees and expenses, $25,000 of which has been paid prior to the Closing. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

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5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

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5.10Survival. The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice.

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5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

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5.18Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FWS. FWS does not represent all of the Purchasers but only Midsummer. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

5.19Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.21Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

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5.22WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

CAPITAL GROWTH SYSTEMS, INC.	Address for Notice: Attention Chief Executive Officer 500 W. Madison St., Suite 2060 Chicago, Illinois 60661 Facsimile: 312-673-2422
By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice):
Shefsky & Froelich Ltd. 111 E. Wacker Dr., Suite 2800 Chicago, Illinois 60601 Facsimile: 312-275-7569

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO CGSY SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Principal Amount (Subscription Amount multiplied by 1.65): _____________

Warrant Shares: _________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

EX-10.12 13 v132473_ex10-12.htm

Exhibit 10.12

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENTS (AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November ___, 2008

Original Conversion Price (subject to adjustment herein): $0.24

$_______________

ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on the seven year anniversary of the Original Issue Date (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

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“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

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“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued and unpaid default interest.

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“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture issued to the Administrator, and (f) Magenta employee notes in the amount of approximately $87,000.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

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“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

“Quarterly Redemption Notice” shall have the meaning set forth in Section 6(a) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

¹ A*B-A/23, where A = the initial Subscription Amount and B = 1.65.

¹ A*B-A

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Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Authorized Share Approval until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)[Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.] [SECTION 4(c) TO BE REPLACED BY “[RESERVED]” WITH RESPECT TO AEQUITAS AND DAVID L.]]

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

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ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. After the Authorized Share Approval, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”).

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The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and, if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the March Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the March Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

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Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exists or occurs;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

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Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

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b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November___, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title
Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due November ___, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:  

Account No:  

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on November ___, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.13 14 v132473_ex10-13.htm

Exhibit 10.13

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Authorized Share Approvaldate (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the date the Authorized Share Approval is received and effective (the “Termination Date”) but not thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a Florida corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the date the Authorized Share Approval has been received and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

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b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise. If at any time after the earlier of (i) the six month anniversary of the date of the Purchase Agreement and (ii) the completion of the then-applicable holding period required by Rule 144, or any successor provision then in effect, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant until the Authorized Share Approval Date.The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. [This Section 2(d) to be replaced in Aequitas Warrant with “[RESERVED]”]

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e)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the seventh Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

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c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

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Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants that after the Authorized Share Approval is received, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders holding Warrants at least equal to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

20

16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

22

(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

23

(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

24

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

26

[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

S1-1

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

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(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

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3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

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4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

*************************

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[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

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EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

A-1

(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

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EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.8

Exhibit 10.8

TERM LOAN AND SECURITY AGREEMENT

Dated as of November ____, 2008

Among

CAPITAL GROWTH SYSTEMS, INC.,

GLOBAL CAPACITY GROUP, INC.,

CENTREPATH, INC.,

20/20 TECHNOLOGIES, INC.,

20/20 TECHNOLOGIES I, LLC,

NEXVU TECHNOLOGIES, LLC,

FNS 2007, INC.,

MAGENTA NETLOGIC LIMITED,

CAPITAL GROWTH ACQUISITION, INC., and

VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC

(as Borrowers),

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

(as Lenders),

and

ACF CGS, L.L.C.

(as Agent)

TABLE OF CONTENTS

		Page
1.	Definitions	2
2.	Borrowing	14
3.	Interest and Fees	20
4.	Representations and Warranties of Borrowers	21
5.	Collateral	25
6.	Financial Covenants	26
7.	Collateral Covenants	26
8.	Negative Covenants	30
9.	Reporting and Information	32
10.	Inspection Rights; Expenses; Etc.	33
11.	Rights of Setoff, Application of Payments, Etc.	34
12.	Attorney-in-Fact	34
13.	Defaults and Remedies	35
14.	Indemnification	38
14.	Indemnification	43
15.	General Provisions	44

Attachments:

Addendum

Exhibit A - Lender and Lenders’ Commitment

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Term Note

Exhibit D - Employment Agreements

TERM LOAN AND SECURITY AGREEMENT

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the ___ day of September, 2008 among CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a Global Capacity Direct, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein individually as a “Borrower” and collectively as the “Borrowers”), the lenders from time to time party hereto (each a “Lender” and collectively, the “Lenders”) and ACF CGS, L.L.C., a Delaware limited liability company, as agent for the Lenders (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a secured term loan and Lenders are willing to provide a secured term loan to Borrowers on the terms set forth herein, which secured term loan Borrowers will use for the purposes permitted hereunder; and

WHEREAS, Borrowers’ business is a mutual and collective enterprise and Borrowers believe that the consolidation of the secured term loan and other financial accommodations under this Agreement will enhance the aggregate borrowing powers of Borrowers and facilitate the administration of their loan relationship with Agent and each of the Lenders, all to the mutual advantage of Borrowers; and

WHEREAS, each Borrower acknowledges that it will receive substantial direct and indirect benefits by reason of the making of the secured term loan and other financial accommodations to Borrowers as provided in this Agreement, by virtue of Borrowers’ various inter-relationships as joint guarantors or joint obligors and the beneficiaries thereof, as lessors and lessees, as suppliers and customers, and as joint venturers; and

WHEREAS, Lender’s willingness to extend financial accommodations to Borrowers, and to administer Borrowers’ collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers’ request and in furtherance of Borrowers’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions. For purposes of this Agreement:

“20/20 Inc. Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 Inc. in favor of the Agent, on behalf if itself and the Lenders, with respect to its Stock in 20/20 LLC.

“20/20 LLC Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by 20/20 LLC in favor of the Agent, on behalf of itself and the Lenders, with respect to its Stock in Magenta.

“Accounts” means all presently existing or hereafter arising accounts receivable due each Borrower (including medical and health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to each Borrower, whether or not arising from the sale or lease of goods or the rendition of services by such Borrower (including any obligation that might be characterized as an account, contract right, general intangible or chattel paper under the UCC), all of each Borrower’s rights in, to and under all purchase orders now or hereafter received by such Borrower for goods and services, all proceeds from the sale of Inventory, all monies due or to become due to each Borrower under all contracts for the sale or lease of goods or the rendition of services by such Borrower (whether or not yet earned) (including the right to receive the proceeds of said purchase orders and contracts), all amounts payable to each Borrower under any insurance policy, all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by each Borrower that correspond to any of the foregoing.

“Account Control Agreements” shall mean collectively, the Private Bank Account Control Agreement and the HSBC Account Control Agreement.

“Acquisition” means the acquisition by CG Acquisition of 100% of the membership interests of Vanco pursuant to the Acquisition Documents.

“Acquisition Documents” means the Interest Purchase Agreement and the Management Services Agreement, together with all other agreements, instruments, opinions of counsel and other documents executed and/or delivered in connection with the Acquisition.

“Addendum” means the Addendum to Term Loan and Security Agreement attached hereto, as the same may be amended and in effect from time to time.

“Adjusted Working Capital” means the remainder of (a) the consolidated current assets of the Borrowers minus the amount of cash and cash equivalents included in such consolidated current assets, minus (b) the consolidated current liabilities of the Borrowers minus the amount of consolidated short-term Indebtedness (including current maturities of long-term Indebtedness) of the Borrowers included in such consolidated current liabilities.

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“Affiliate” means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person, and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person, (ii) that, directly or indirectly beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or (iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other interests, by contract or otherwise.

“Agent” has the meaning set forth in the preamble hereto.

“Agent Advances” has the meaning specified therefor in Section 14(h).

“Agreement Date” means the date as of which this Agreement is dated.

“Annualized EBITDA” shall mean the trailing period EBITDA annualized to twelve (12) months.

“Applicable Authorization States” means the states of Arizona, Delaware, Georgia, Indiana, Pennsylvania, Tennessee and West Virginia.

“Applicable Margin” means the rate of interest to be paid on the unpaid principal amount of the Term Note from and after the Agreement Date. For the period from and after the Agreement Date, the Applicable Margin shall be 14% per annum payable monthly, of which 9% shall be paid in cash, and 5% shall be capitalized, compounded and added to the unpaid principal amount of the Term Note monthly (whereupon from and after such date such additional amounts shall also accrue interest) (such interest, “PIK Interest”).

“Applicable Rate” means a rate equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in form approved by the Agent.

“Borrowers’ Agent” means Parent, in its capacity as agent for itself and the other Borrowers pursuant to Section 2(j).

“Borrower Asset Sales” has the meaning set forth in Section 2(c)(i).

“BT Receivable” means those certain receivables related to Magenta invoices OPT-20080807-1 and OPT-20080331-2 as defined in the BT Receivables Agreement.

“BT Receivables Agreement” means that certain Second Amendment to British Telecommunications and Magenta netLogic Ltd. Camera Agreement 10693 dated September 30, 2008.

3

“BT Receivable Payment” means any cash received by a Borrower with respect to the BT Receivable.

“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent is otherwise closed for transacting business with the public.

“Capitalized Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligations” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Balance” means, at any time, unrestricted cash and cash equivalents of Borrowers, on deposit with (i) the Depository Bank and subject to the Private Bank Account Control Agreement, and (ii) HSBC USA, National Association and subject to the HSBC Account Control Agreement.

“CG Acquisition Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by CG Acquisition in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Vanco.

“Collateral” has the meaning set forth in Section 5(a).

“Commitment” means with respect to each Lender, the commitment of such Lender to make the Term Loan to the Borrowers in the amount set forth in Exhibit A hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement.

“Credit Party” means each Borrower, any other Person primarily or secondarily, directly or indirectly, liable on any of the Obligations, or any other Person which has granted a Lien on any assets of such Person as collateral for any of the Obligations, and “Credit Parties” means all of the foregoing Persons collectively.

“Customer” means any customer of any Borrower.

“Debenture Documents” means the Debenture Purchase Agreements and all debentures, security agreements, guarantees and other agreements executed and/or delivered in connection with the Debenture Indebtedness.

“Debenture Indebtedness” means Indebtedness of Parent (which is guaranteed by certain other Borrowers) evidenced by the debentures issued pursuant to the Debenture Purchase Agreements, as described in Item 9 of the Addendum.

“Debenture Intercreditor Agreement” means that certain Debt Subordination and Intercreditor Agreement dated on or about the Agreement Date among Agent, for the benefit of the Agent and the Lenders, and the Debenture Purchasers.

4

“Debenture Purchasers” means the Purchasers under and as defined in the Debenture Purchase Agreements and any successor holders of Debenture Indebtedness permitted under the Debenture Intercreditor Agreement.

“Debenture Purchase Agreements” mean each of: (a) that certain Securities Purchase Agreement dated as of March 11, 2008, among Parent and the Debenture Purchasers party thereto, as modified and amended pursuant to that certain Consent, Waiver, Amendment and Exchange Agreement dated on or about the Agreement Date, pursuant to which Parent agrees to issue debentures to such Debenture Purchasers to cover the outstanding interest payable for the remainder of the terms of their original debentures and to cover the remaining penalties associated with failure to meet the maximum negotiated obligations pursuant to the Registration Rights Agreement between Parent and such Debenture Purchasers; (b) that certain Note Purchase Agreement dated as of September 25, 2008, between Parent and Aequitas Catalyst Fund, LLC –Series B; (c) that certain Securities Purchase Agreement dated on or about the Agreement Date among Parent and the Debenture Purchasers party thereto; and (d) the Interest Purchase Agreement to the extent the same provides, for the issuance of a debenture to the Administrator in the original principal amount of $4,000,000.

“Depository Bank” shall mean The Private Bank and Trust Company, its successors and assigns, in its capacity as the provider of cash management services to the Borrowers.

“Default” has the meaning set forth in Section 13(a).

“EBITDA” means for Borrowers on a consolidated basis, net income (excluding non-recurring gains and extraordinary gains) before provision for interest expense, taxes, depreciation, amortization, and financing and transaction fees relating to the initial closing of this Agreement and the Acquisition ,determined in accordance with GAAP, and excluding, in any event, any non-cash impact on income or loss from application of variable accounting rules or requirements, and any expenses associated with original issue discounts and Stock based compensation.

“Employment Agreements” means, collectively, the Employment Agreements between Parent and each of (i) Patrick C. Shutt, (ii) George A. King, (iii) Robert A. Pollan, (iv) Jim McDevitt, and (v) Chris Conant, each as attached hereto as Exhibit D.

“Equipment” means all of each Borrower’s machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.

“Excess Cash Flow” means, with respect to any fiscal period for the Borrowers on a consolidated basis determined in accordance with GAAP, (a) EBITDA, plus (b) any net decrease (or minus any net increase) in Adjusted Working Capital during such period, minus (c) the sum of (i) the cash portion of interest actually paid during such period, (ii) the cash portion of income taxes paid during such period, (iii) all principal payments made in cash with respect of the Term Loan (if any), and (iv) the cash portion of capital expenditures made during such period and in accordance with Item 21 of the Addendum.

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“Excluded Equipment” means the Equipment owned by any Borrower or Vanco, as the case may be, and used in connection with the delivery of telecommunications services as part of the respective business operations of any Borrower or Vanco within the Applicable Authorization States.

“Extraordinary Receipts” means any cash received by a Borrower with respect to (a) federal and state tax refunds (but only to the extent such state tax refunds exceed $25,000, in the aggregate in any fiscal year), (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance and, unless Agent provides its prior written consent otherwise, business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, including without limitation, awards or settlements in respect of condemnation and eminent domain proceedings, (e) indemnity payments, (f) any purchase price adjustment received in connection with any purchase agreement (other than relating to ordinary purchases of goods and services in the ordinary course of business), excluding in all events, any future proceeds from the previous asset sale transactions involving Nexvu or FNS, and (g) at any time that a Default shall exist and at the sole discretion of Agent, any other cash received by a Borrower not in the ordinary course of business.

“FCC” means the U.S. Federal Communications Commission.

“Final Closing” means the release from escrow of the Purchased Membership Interests pursuant to the Acquisition Documents.

“Funding Date” means a date (i) no later than one (1) Business Day following the delivery of notification to the Agent, in form and substance satisfactory to Agent in its sole discretion, that the STA Requests (as such term is defined in the Interest Purchase Agreement) have been approved and (ii) on which satisfaction of the applicable conditions set forth in Item 2 of the Addendum have occurred.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination and applied on a consistent basis.

“General Intangibles” means all of each Borrower’s present and future general intangibles and all other presently owned or hereafter acquired intangible personal property of each Borrower (including payment intangibles, all rights under insurance policies and any and all choses or things in action, goodwill, patents and patent applications, trade names, servicemarks, trademarks and trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as each Borrower’s books and records relating to any of the foregoing.

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“Goods” means all of each Borrower’s present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software to the extent included in “goods” as defined in the UCC, manufactured homes, and standing timber that is to be cut and removed for sale.

“Governing Documents” shall mean, with respect to any Person, its certificate or articles of incorporation, certificate of formation, or, as the case may be, certificate of limited partnership, its by-laws, operating agreement or, as the case may be, partnership agreement or other constitutive documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all governmental bodies, whether federal, state, local or foreign national or provincial and all agencies thereof, including, without limitation, any domestic and international Section 214 authorizations from the FCC and certificates of public convenience and necessity or the equivalent from various state telecommunications regulatory commissions.

“HSBC Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and HSBC USA, National Association.

“Indebtedness” shall mean the aggregate amount of, without duplication, (a) all obligations of each Borrower for borrowed money, (b) all obligations of each Borrower evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of each Borrower to pay the deferred purchase price of property or services (excluding trade payables that are aged less than ninety (90) days), (d) all Capitalized Lease Obligations of each Borrower, (e) all obligations or liabilities of any other Person secured by a Lien on any asset of any Borrower, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by any Borrower; and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of any Borrower.

“Intellectual Property” means any and all licenses, patents, copyrights, trademarks, designs and the goodwill associated with such trademarks.

“Interest Expense” means, for any period, the aggregate of the interest expense of the Borrowers for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Purchase Agreement” means that certain Interest and Loan Purchase Agreement dated as of November 14, 2008 among CG Acquisition, Seller, and the Administrators party thereto.

“Inventory” means all of each Borrower’s inventory as defined in the UCC, together with all of each Borrower’s present and future inventory, including goods held for sale or lease or to be furnished under a contract of service and all of each Borrower’s present and future raw materials, work in process, finished goods, shelving and racking upon which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above.

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“Investment” shall mean the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, any Person.

“Lien” means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments, certificates and other documents executed and/or delivered in connection with this Agreement, including collateral documents, security agreements, pledges, guaranties, mortgages, deeds of trust, assignments, subordination agreements, intercreditor agreements, warrants and registration rights agreements (it being understood, however, that any termination of this Agreement shall not terminate or otherwise limit Agent’s or any Lender’s rights under any such warrant, registration rights agreement or other related document unless Agent expressly so agrees in writing) and all other agreements executed or delivered by any Borrower or any other Credit Party or any Affiliate of any Borrower or any other Credit Party pursuant hereto or in connection herewith.

“Magenta Account” has the meaning set forth in Section 7(k)(ii).

“Magenta Three-Party Account Agreement” shall mean the Three-Party Account Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, Magenta and HSBC Bank, plc.

“Management Services Agreement” means that certain Management Services Agreement dated as of November 14, 2008, among CG Acquisition, Seller, and the Administrators party thereto.

“Material Adverse Effect” shall mean any state of facts, events, changes or effects that is materially adverse to or materially impairs: (a) the business, results of operations, properties, assets, condition (financial or otherwise) or prospects of the Borrowers taken as a whole; (b) the ability of Borrowers to perform the Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or any of the Lenders to enforce any of its rights or remedies with respect to the Obligations or under the Loan Documents; or (c) the Collateral (including the value and condition thereof) or Agent’s or any Lender’s Liens on the Collateral or the priority of such Liens.

“Material Contract” means, with respect to any Person, (i) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person or such Subsidiary of $250,000 or more, (ii) the Acquisition Documents and (iii) all other contracts or agreements material to the business, operations, condition (financial or otherwise), performance, prospects or properties of such Person or such Subsidiary.

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“Monthly Recurring Circuit Revenue” means the aggregate monthly invoice amount for all monthly billings issued by any of the Borrowers with respect to their circuit business. The monthly recurring circuit revenue will equal the total monthly billing amount determined as of the date the Borrowers issue their monthly invoices (usually the 1^st day of the month).

“Negotiable Collateral” means all of each Borrower’s present and future letters of credit, advises of credit, notes, drafts, instruments, and documents, including, without limitation, bills of lading, leases, and chattel paper, and each Borrower’s books and records relating to any of the foregoing.

“Net Cash Proceeds” means:

(a)with respect to any sale or disposition by a Borrower of property or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under this Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by a Borrower in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction;

(b)with respect to the issuance or incurrence of any Indebtedness by a Borrower, or the issuance by a Borrower of any shares of its Stock (excluding sales of Stock in the Parent pursuant to warrants or options in existence as of the date hereof), the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of a Borrower in connection with such issuance or incurrence, after deducting therefrom only (i) all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such issuance or incurrence, and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such transaction; and

(c)with respect to any Extraordinary Receipts received by a Borrower, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of a Borrower, in connection therewith after deducting therefrom only (i)  all fees, commissions, and expenses related thereto and required to be paid by a Borrower in connection with such Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities by a Borrower in connection with such Extraordinary Receipts, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of a Borrower, and are properly attributable to such Extraordinary Receipts.

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“New Lending Office” has the meaning set forth in Section 2(o).

“Nexvu Stock Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof, granted by Nexvu in favor of Agent, on behalf of itself and the Lenders, with respect to its Stock in Nexvu Manager, Inc. and Nexvu APM, LLC.

“Obligations” means all indebtedness, obligations and liabilities of each Credit Party to Agent, any of the Lenders, and any of their Affiliates, individually or collectively, under the Loan Documents, whether now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise, or whether evidenced by any instrument, agreement or book account, including, but not limited to, the Term Loan (including any modification, renewal or extension), and all interest, taxes, fees, charges, expenses, indemnity obligations and attorney’s fees (whether or not such attorney is a regularly salaried employee of Agent or any of the Lenders or any of their Affiliates) chargeable to any Credit Party or incurred by Agent or any of the Lenders under this Agreement or any other Loan Document.

“Parent Stock Pledge Agreement” means that certain Pledge Agreement of even date herewith granted by Parent in favor of Agent, on behalf if itself and the Lenders, with respect to its Stock in CentrePath, GCG, 20/20 Inc., FNS, Nexvu and CG Acquisition.

“Participant Register” has the meaning specified therefor in Section 16(f)(vii).

“Permitted Dispositions” means (a) sales or other dispositions of Inventory and Equipment that is substantially worn, damaged, or obsolete or no longer used or usable in the business of the Borrowers, in each case, in the ordinary course of business and for fair consideration and on terms no less favorable to the Borrowers than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and (b) sales of Inventory to buyers in the ordinary course of business.

“Permitted Indebtedness” shall mean and include: (a) the Obligations; (b) Indebtedness arising from the endorsement of instruments in the ordinary course of business of a Borrower; (c) Subordinated Debt; (d) Indebtedness existing as of the date hereof to the extent listed on Item 9 of the Addendum; (e) Indebtedness in connection with purchase money security interests constituting Permitted Liens and Capitalized Leases not to exceed, in aggregated principal amount for all Borrowers on a consolidated basis, the amount set forth on Item 20 of the Addendum at any one time outstanding; (f) Indebtedness consisting of reimbursement obligations under surety, indemnity, performance, release and appeal bonds and guarantees thereof and letters of credit issued to landlords in the ordinary course of business of a Borrower; and (g) extensions, refinancings, refundings, renewals, modifications, amendments and restatements of any Permitted Indebtedness that do not increase the principal amount or interest rate per annum thereof, shorten the maturity thereof or accelerate the principal payments thereof.

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“Permitted Investments” shall mean and include: (a) deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent such deposits are fully insured by the Federal Deposit Insurance Corporation in which Agent has a perfected, first-priority security interest, and up £75,000 at any time in the Magenta Account, as disclosed to Agent on Item 14 of the Addendum, in the United Kingdom without such a security interest and provided such account shall be maintained at all times in accordance with the terms of Section 7(k)(ii) of this Agreement; (b) Investments in money market accounts maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (c) Investments in certificates of deposit maintained by banks or financial institutions having a net worth of not less than $50,000,000 in which Agent has a perfected, first-priority security interest; (d) Investments in marketable obligations issued or fully guaranteed by the United States, or any agency thereof, and maturing not more than one (1) year from the date of acquisition; (e) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (f) Investments existing on the date hereof to the extent listed on Item 7 of the Addendum; (g) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business of a Borrower, but only to the extent the same are entered into to hedge risk and not for speculation; (h) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business of the Borrowers; and (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business the Borrowers.

“Permitted Liens” means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment, stay of execution or injunction; (iv) the performance of bids, tenders or contracts (other than for the repayment of borrowed money); (v) indemnity, performance or other bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money); and (vi) obligations to landlords in the ordinary course of business of the Borrowers; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such property or materially detract from the value of such property; (d) Liens existing on the Agreement Date and described on Item 1 of the Addendum; (e) Liens on Equipment securing all or part of the purchase price of such Equipment; provided, however, that (i) such Lien is created contemporaneously with the acquisition of such Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the Indebtedness incurred to acquire such Equipment; (f) so long as the Debenture Intercreditor Agreement is in full force and effect, Liens on all or substantially all assets of Borrowers in favor of the Debenture Purchasers to secure the Debenture Indebtedness, including the indebtedness described in Item 9 of the Addendum; (g) Liens arising from judgments, decrees or attachments that do not constitute a Default under this Agreement; and (h) Liens in favor of Agent or any of the Lenders securing any of the Obligations.

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“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

“PIK Interest” has the meaning set forth in the definition of “Applicable Margin”.

“Prime Rate” means, at any time, the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s thirty (30) largest banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three (3) largest U.S. money center commercial banks, as determined by Agent. Notwithstanding the foregoing, for purposes of this Agreement, at no time shall the Prime Rate be less than five percent (5.0%) per annum. The Prime Rate may not be the lowest or best rate at which Agent calculates interest or the Lenders extend credit. Any change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change.

“Private Bank Account Control Agreement” shall mean the Account Control Agreement dated on or about the Agreement Date, among the Agent, for the benefit of the Agent and the Lenders, the Borrowers and the Depository Bank.

“Pro Rata Share” means the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the Total Commitment.

“Purchased Membership Interests” means the membership interests of Vanco to be purchased by CG Acquisition pursuant to the Acquisition Documents.

“Recurring Circuit Margin” means for a particular measurement period (i) the difference between the Monthly Recurring Circuit Revenue for the months comprising such measurement period and (ii) the direct cost to Borrowers of any circuits included within Monthly Recurring Circuit Revenue for the months included within such measurement period, but excluding any costs which are non-recurring.

“Register” has the meaning set forth in Section 16(f)(iv).

“Registered Loan” has the meaning set forth in Section 16(f)(iv).

“Required Lenders” means Lenders whose Pro Rata Shares aggregate at least 50.1%.

“Related Fund” means, with respect to any Person, an Affiliate of such Person, or a fund or account managed by such Person or an Affiliate of such Person.

“Seller” means Vanco plc (in administration), a United Kingdom corporation.

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“Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act) or equivalent securities issued by Magenta or any other foreign subsidiary.

“Strategic Sourcing Business Unit” means the segment of the Borrowers’ business that provides network services for clients, including design, installation, provisioning, management and monitoring of circuits.

“Subordinated Debt” means (a) so long as the Debenture Intercreditor Agreement remains in full force and effect, the Debenture Indebtedness, and (b) all of the Indebtedness owed by any Borrower to any other Person, the repayment of which is subordinated to the repayment of the Obligations pursuant to the terms of a subordination agreement approved by Agent and the Required Lenders in writing in their sole discretion.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or managing member or may exercise the powers of a general partner whether directly or indirectly, and (c) any other Person (other than a corporation, limited liability company or partnership) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (a) at least a majority ownership interest or (b) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Term Loan” has the meaning set forth in Section 2(a).

“Term Note” has the meaning set forth in Section 2(b).

“Total Commitment” means the sum of the amounts of the Lenders' Commitments.

“Transferee” has the meaning set forth in Section 2(o).

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, however, that to the extent that the UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

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Other Definitional Provisions. References to the “Addendum” or any “Section” or “Exhibit” refer to the Addendum or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement: words importing any gender include the other genders; the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; all references to time of day shall refer to New York, New York time; and all references to financial calculations or statements on a “consolidated” basis mean calculations or statements that reflect information and results with respect to Borrowers and no other Person. Unless otherwise specifically indicated, all monetary amounts and references herein refer to United States dollars, and all amounts to be loaned and paid hereunder shall be in United States dollars. In the event that Agent receives any payment in any currency other than United States dollars, Agent shall determine the conversion rate with respect to such amount in its reasonable discretion for purposes of determining the amount of the Obligations that have been satisfied.

2.Borrowing and Terms of Payment.

(a)The Term Loan. Subject to the terms and conditions set forth in this Agreement, each Lender, simultaneously and proportionately to their Pro Rata Shares of the Total Commitment, agrees to make a term loan in favor of the Borrowers to be funded on the Funding Date (the “Term Loan”). Any portion of the Total Commitment not funded on the Funding Date, shall not be available to the Borrowers without the Agent’s express written consent. Subject to satisfaction of the applicable conditions set forth in Item 2 of the Addendum,on the Funding Dateeach Lender shall disburse the proceeds of the Term Loan to the Borrowers or as the Borrowers’ Agent shall request in writing. Amounts repaid in respect of the Term Loan may not be reborrowed.

(b)The Term Note. The Term Loan shall be evidenced by separate promissory notes of the Borrowers in the form of Exhibit C attached hereto payable to each Lender (the “Term Note”) in the original principal amount of such Lender’s Commitment, dated as of the Agreement Date (or such other date on which a Lender may become a party hereto in accordance with Section 16(f) hereof)and completed with appropriate insertions.

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(c)Mandatory Prepayments.

(i)Immediately upon the receipt by any Borrower of the proceeds of any voluntary or involuntary sale or disposition by any Credit Party of property or assets (including casualty losses or condemnations but excluding sales or dispositions which qualify as Permitted Dispositions) (“Borrower Asset Sales”), Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such Borrower Asset Sale; provided that, solely in respect of any Borrower Asset Sales, so long as (A) no Default shall have occurred and is continuing, (B) Borrower’s Agent shall have given Agent prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the monies are held in a cash collateral account in which Agent, for the benefit of the Agent and the Lenders has a perfected first priority security interest, and (D) Borrowers complete such replacement, purchase, or construction within 90 days after the initial receipt of such monies, Borrowers shall have the option to apply such monies to the costs of replacement of the property or assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent for application against the Obligations. Nothing contained in this Section 2(c)(i) shall permit any Borrower to sell or otherwise dispose of any property or assets other than in accordance with the terms and conditions of this Agreement.

(ii)Immediately upon the receipt by any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Extraordinary Receipts.

(iii)Immediately upon the issuance or incurrence by any Borrower of any Indebtedness (other than Indebtedness permitted hereunder) or the issuance by any Borrower of any shares of such Borrower’s Stock (excluding sales of Stock of the Parent pursuant to warrants or options in existence as of the date hereof) Borrowers shall prepay the outstanding principal amount of the Obligations (including, without limitation, any fees pursuant to Section 3(c) due and payable on the amount so prepaid) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such issuance or incurrence. The provisions of this Section 2(c)(iii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(iv)No later than two (2) Business Days following the receipt by any Borrower of any BT Receivable Payment, Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to sixty-six percent (66%) of the BT Receivable Payment received by such Person. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

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(v)Within ten (10) days following delivery to Agent and the Lenders of Borrowers’ monthly financial statements pursuant to Section 9(a) for the month ended December 31, 2009 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 9(a), ten (10) days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 9(a), Borrowers shall prepay the outstanding principal amount of the Obligations in an amount equal to 50% of the Excess Cash Flow of the Borrowers for fiscal year 2009. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have overpaid the Excess Cash Flow payment referred to herein, then the Agent shall credit such overpayment to any interest then due and payable, if any, or the Borrowers’ next scheduled payment of interest if no interest is then due and payable. If the information in the Borrowers’ audited financial statements delivered pursuant to Section 9(a) for fiscal year 2009 proves to be incorrect such that the Borrowers have underpaid the Excess Cash Flow payment referred to herein, then the amount of such underpayment shall be immediately due and payable in cash to the Agent for application to any outstanding Obligations. A payment hereunder shall not constitute a prepayment for purposes of any fees payable under Item 5 of the Addendum.

(d)Voluntary Prepayments. Borrowers may prepay the principal balance of the Term Loan in whole or in part at any time upon at least 30 days’ prior written notice from Borrowers’ Agent to Agent (which notice, once given shall be irrevocable). Any such prepayment of principal shall be accompanied by accrued interest on the amount so prepaid and any fees pursuant to Section 3(c) due and payable on the amount so prepaid. Any portion of the Term Loan prepaid hereunder may not be reborrowed.

(e)Conditions to Obligation to Making of the Term Loan. Borrowers acknowledge that Lenders’ obligation to make the Term Loan to Borrowers is subject to the following terms and conditions:

(i)Agent has no obligation to make the Term Loan to Borrowers or to extend any other financial accommodation to any Borrower unless and until (A) Borrowers deliver to Agent, in form and substance satisfactory to Agent in its discretion, each agreement, instrument, legal opinion and other document specified on Item 2 of the Addendum,and (B) each other condition precedent specified on Item 2 of the Addendumhas been satisfied in a manner satisfactory to Agent in Agent’s sole discretion. Once the conditions described in this Section 2(e) have been satisfied in Agent’s sole and absolute discretion, Agent shall provide Lender with a letter confirming same.

(ii)Lenders’ obligation to make the Term Loan to Borrowers and extend other financial accommodations to Borrowers is subject to the conditions that, as of the Agreement Date, (A) no Default will have occurred and be continuing hereunder, (B) there will have occurred no event or circumstance which has had or which could reasonably be expected to have a Material Adverse Effect, (C) Borrowers’ representations and warranties set forth in this Agreement and the other Loan Documents will be true and correct and (D) the Borrowers’ application for Special Temporary Authority has been approved by the applicable governmental authorities, as defined and described in the Interest Purchase Agreement.

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(f)Repayment of Term Loan. The entire outstanding principal balance of the Term Loan, together with all accrued and unpaid interest and all other outstanding Obligations, shall be due and payable on the Termination Date as provided for in Item 3 of the Addendum, unless sooner due as a result of acceleration or demand hereunder. Borrowers shall make each payment required hereunder or under any other Loan Document without setoff, deduction or counterclaim. All payments by Borrowers shall be made to Agent’s for the account of the Lenders or as otherwise directed by the Agent in writing from time to time and shall be made in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. Any payment received by Agent (or such Person to whom the Agent has directed payment) later than 2:00 p.m. (New York City time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(g)Maturity. This Agreement will continue in full force and effect from the Agreement Date until the Termination Date provided for in Item 3 of the Addendum.

(h)Termination on Default. Notwithstanding the foregoing, should a Default occur and be continuing, Agent will have the right to terminate this Agreement at any time without notice.

(i)Survival. Notwithstanding termination, all the terms, conditions, and provisions hereof (including Agent’s security interest in the Collateral, but excluding any obligations of Agent hereunder) will continue to be fully operative until all Obligations have been fully disposed of, concluded, paid, satisfied, and liquidated (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and obligations under the warrant and registration rights agreement issued or executed in connection herewith). All indemnification obligations of Borrowers hereunder and under the other Loan Documents shall survive termination of this Agreement and the other Loan Documents.

(j)Borrowers’ Agent. Each Borrower other than Parent hereby appoints Parent, and Parent shall act under this Agreement and the other Loan Documents, as, the agent, attorney-in-fact and legal representative of all Borrowers for all purposes, including receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent, and each of the Lenders, may rely, and shall be fully protected in relying, on any disbursement instruction, report, information or any other notice or communication made or given by Parent, whether in its own name, as Borrowers’ Agent, or on behalf of one or more Borrowers, and Agent and each of the Lenders, shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Borrowers’ obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Borrower from taking actions permitted to be taken by a “Borrower” hereunder.

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(k)Joint and Several Liability.

(i)The Term Loan made to Borrowers and all of the other Obligations of Borrowers, including all interest, fees and expenses with respect thereto, shall constitute one joint and several direct and general obligation of all Borrowers. Notwithstanding anything to the contrary contained herein, each Borrower shall be jointly and severally, with each other Borrower, directly and unconditionally liable to Agent and each of the Lenders for all Obligations, it being understood that the Term Loan to each Borrower inures to the benefit of all Borrowers, and that Agent and each of the Lenders are relying on the joint and several liability of Borrowers as co-makers in extending the Term Loan hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any Obligation payable to Agent or any of the Lenders, it will forthwith pay the same, without notice or demand, unless such payment is then prohibited by application of law (provided such Obligation shall not be extinguished by any such prohibition).

(ii)No payment or payments made by any Borrower or any other Person or received or collected by Agent from any Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of each Borrower under this Agreement, and each Borrower shall remain liable for all of the remaining Obligations until the Obligations are paid in full.

(l)Obligations Absolute. Each Borrower agrees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any of the Lenders with respect thereto, unless such payment is then prohibited by applicable law (provided such Obligation shall not be extinguished by any such prohibition.) All Obligations shall be conclusively presumed to have been created in reliance hereon. The Obligations and other liabilities under this Agreement and the other Loan Documents shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the extension of additional credit to any Borrower or otherwise; (iii) any taking, exchange, release of or non-perfection in any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate or limited liability structure or existence of any Borrower; or (v) any other circumstance which may otherwise constitute a defense available to, or a discharge of, any Borrower. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Agent or any of the Lenders upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.

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(m)Waiver of Suretyship Defenses. Each Borrower agrees that the joint and several liability of Borrowers provided for in this Agreement shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which one or more other Borrowers may hereafter agree (other than an agreement signed by Agent specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Agent with respect to any of the Obligations, nor by any other agreements or arrangements whatever with one or more other Borrowers or with any other Person, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the Obligations and may be enforced without requiring Agent first to resort to any other right, remedy or security. Each Borrower hereby expressly waives promptness, diligence, notice of acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and any requirement that Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other Person or any Collateral.

(n)Contribution and Indemnification among Borrowers. Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. To the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting any of the Term Loan made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then, to the extent that such Borrower has not received the benefit of such repaid Obligations (whether through an inter-company loan or otherwise), the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount (as defined below) and the denominator of which fraction is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the greater of (i) the amount of such repaid Obligations actually received by such Borrower (whether through an inter-company loan or otherwise), and (ii) the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (x) rendering such Borrower “insolvent” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”), Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (y) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (z) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution, indemnification and reimbursement under this paragraph shall be subordinate in right of payment to the prior payment in full of the Obligations.

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(o)Non-U.S. Lender. Each Lender (or any transferee or assignee thereof, including a participation holder (any such entity, a “Transferee”), that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “NonU.S. Lender”) shall deliver to the Agent and the Borrowers two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881 (c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), in each case claiming complete exemption from U.S. Federal withholding tax on payments by the Credit Parties under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms or any other forms required under applicable law within 20 days after receipt of a written request therefor from the Borrowers or the Agent. Notwithstanding any other provision of this Section 2(o), a Non-U.S. Lender shall not be required to deliver after the date hereof any form pursuant to this Section 2(o) that such Non-U.S. Lender is not legally able to deliver.

3. Interest and Fees.

(a)Interest on the Term Loan. The Term Note shall bear interest at the Applicable Rate. Interest on the Term Note shall be computed on the basis of the actual number of days elapsed over a year of 360 days. All accrued interest on the Term Note shall be payable monthly in arrears, in cash or in PIK Interest, as specified in the definition of Applicable Margin.

(b)Default Interest. To the extent permitted by law and without limiting any other right or remedy of Agent or any of the Lenders hereunder, whenever there is a Default under this Agreement, the rate of interest on the unpaid principal balance of the Obligations shall, at the option of Agent or the Required Lenders, be increased by adding the default margin identified on Item 4 of the Addendum to the interest rate otherwise in effect hereunder. In addition, upon the occurrence and during the continuation of a Default under this Agreement, all accrued PIK Interest shall immediately become due and payable in full and without any notice, demand or presentment of any kind notwithstanding any acceleration by the Required Lenders hereunder. Agent may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed. Borrowers acknowledge that: (i) such additional rate is a material inducement to Lenders to make the Term Loan described herein; (ii) Lenders would not have made the Term Loan in the absence of the agreement of Borrowers to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lenders that the Term Loan will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Agent and each of the Lenders in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Term Loan, and (B) compensation to Agent and each of the Lenders for losses that are difficult to ascertain. In the event of termination of this Agreement by either party hereto, Agent’s and each of the Lenders’ entitlement to this charge will continue until all Obligations are paid in full.

(c)Fees. Borrowers will pay to Agent (to be allocated among the Lenders in accordance with their Pro Rata Shares) the fees set forth in Item 5 of the Addendum.

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(d)No Usury. Borrowers acknowledge that Agent does not intend to reserve, charge or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Agent should collect any amount from Borrowers which, if it were interest, would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations remain outstanding, will be refunded to Borrowers.

4. Representations and Warranties of Borrowers.

(a)Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc. Borrowers represent and warrant to Agent and the Lenders that: (i) the exact legal name, type of organization, jurisdiction of organization and organizational identification number of each Borrower are fully and accurately set forth on Item 6 of the Addendum, and each Borrower is duly organized and validly existing under the laws of its jurisdiction of organization; (ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Borrower’s corporate or limited liability company powers, have been duly authorized by all necessary corporate or limited liability company action, do not violate (A) any Borrower’s constituent documents, any law or regulation, including without limitation, (B) any law or regulation relating to occupational health and safety or protection of the environment, applicable to any Borrower, or any indenture, agreement, or undertaking to which any Borrower is a party or by which any Borrower or any Borrower’s property is bound, except where such violation could not reasonably be expected to have a Material Adverse Effect; (iii) this Agreement and the other Loan Documents to which any Borrower is a party constitute valid, binding and enforceable obligations of each Borrower party thereto in accordance with the terms hereof and thereof, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors’ rights generally or by generally applicable equitable principles affecting the enforcement of creditors’ rights; (iv) no Borrower has any subsidiaries or other investments in other Persons, except as set forth on Item 7 of the Addendum and except for other Permitted Investments; (v) except as set forth on Item 29 of the Addendum, each Borrower is in compliance in all material respects with all laws, rules and regulations applicable to such Borrower, including laws, rules or regulations concerning the environment, occupational health and safety and pensions or other employee benefits; (vi) except as set forth on Item

8 of the Addendum, there is no litigation or investigation pending against any Borrower (or, so far as any Borrower is aware, threatened) which, if it were decided adversely to such Borrower, could reasonably be expected to have a Material Adverse Effect (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the Term Loan hereunder, no Borrower is indebted to any other Person for money borrowed nor has any Borrower issued any guaranty of payment or performance by any other Person, except for Permitted Indebtedness; (viii) since the date of the financial statements of Borrowers most recently delivered to Agent, there has been no material adverse change in any Borrower’s business, any Borrower’s financial or operational condition or any Borrower’s business prospects; and (ix) each Borrower is, and after giving effect to the consummation of the Acquisition, the incurrence of the Term Loan under this Agreement and the application of the proceeds of such Term Loan, the Borrowers, on a consolidated basis, will be, solvent and will have sufficient revenues to pay the Borrowers’ obligations as they come due and adequate capital with which to conduct the Borrowers’ business, all determined on a consolidated basis.

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(b)Title to Assets, Other Collateral Matters. Borrowers represent and warrant to Agent and the Lenders that: (i) subject to the escrow established for the Purchased Membership Interests pursuant to the Acquisition Documents, Borrowers have good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust, security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by any Borrower, except in Agent’s favor for the benefit of the Agent and the Lenders, and except with respect to Permitted Liens; (ii) the Accounts are not subject to any material dispute, claim or right of offset and are validly owing by the applicable Customers and, subject to immaterial exceptions, are collectible by Borrowers in the ordinary course of business; (iii) all Inventory is in good condition, meets all applicable governmental standards and is currently usable or saleable in the ordinary course of the applicable Borrower’s business for a price approximating at least such Borrower’s cost thereof; (iv) all Equipment is in good condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards in all material respects; (vi) in the past five years, except as set forth on Item 9 of the Addendum (A) no Borrower has used any other legal, trade or fictitious names, and (B) other than the Acquisition, no Borrower has been a party to any merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) the chief executive office and principal place of business of each Borrower, all Inventory, all Equipment and all other Collateral is located at the addresses (including the county) set forth on Item 11 of the Addendumand has not been located at any other location during the five year period prior to the Agreement Date.

(c)Ownership Structure.Borrowers represent and warrant that Item 12 of the Addendum accurately describes the ownership of each Borrower’s capital stock, membership interests or other equity interests.

(d)Acquisition. Borrowers represent and warrant to Agent and the Lenders that (i) Borrowers have furnished to Agent true, complete and correct copies of all of the Acquisition Documents (including any schedules, exhibits and annexes thereto) as in effect on the date hereof; (ii) none of the Acquisition Documents has been amended, supplemented or modified; (iii) the Acquisition Documents constitute the complete understanding among the parties thereto in respect of the Acquisition and the other matters and transactions covered thereby; (iv) each Acquisition Document has been duly executed and delivered by the parties thereto and is a legal, valid and binding obligation of each such party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles; and (v) the Borrowers are not aware of any fact or circumstance that would prohibit the Acquisition from occurring including, without limitation, the Final Closing.

(e)Consummation of Transactions. Subject to the occurrence of the Final Closing upon satisfaction of the conditions precedent set forth in Section 1.5 of the Interest Purchase Agreement, Borrowers represent and warrant to Agent and the Lenders that, on the Agreement Date, the transactions contemplated by the Acquisition Documents will have been consummated in accordance with all applicable laws (except where such non-compliance could not reasonably be expected to have a Material Adverse Effect) and, except as consented to in writing by Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the material conditions to such consummation set forth in the Acquisition Documents shall have been fulfilled without any waiver of any such material conditions. Agent acknowledges that the Purchased Membership Interests shall be held in escrow pursuant to the satisfaction of certain conditions specified in the Interest Purchase Agreement, and Borrowers represent and warrant to Agent and Lenders that (i) the Purchased Membership Interests will be owned by CG Acquisition free of such escrow arrangement or any claim by Seller no later than 90 days after the Agreement Date, and (ii) the Seller has no right to remove the Purchased Membership Interests from such escrow arrangement or otherwise reclaim the Purchased Membership Interests or prevent CG Acquisition from becoming the absolute owner thereof no later than 90 days following the Agreement Date.

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(f)Licenses and Governmental Approvals. Borrowers represent and warrant to Agent and Lenders that, except for those Governmental Approvals the absence of which could not reasonably be expected to have a Material Adverse Effect, (i) each Borrower has all Governmental Approvals required by applicable law in order to operate its business; (ii) all such Governmental Approvals are in full force and effect; and (iii) Agent and each of the Lenders are not required to obtain any such Governmental Approval in order to enter into the transactions contemplated by this Agreement or to exercise their rights and remedies hereunder (including the liquidation of the Collateral and collecting the Accounts), except for such consents and approvals as may be required by the FCC or any state public service commission in connection with the transfer of control or assignment of a licensee of, or an authorization or license issued by such governmental entity to Vanco and as set forth on Item 29 of the Addendum and except for such consents and approvals that that would be required under federal law for Agent and each of the Lenders to exercise their rights and remedies hereunder.

(g)Additional Representations. Borrowers represent and warrant to Agent and the Lenders that: (i) no Borrower is engaged as one of such Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) no Borrower owns any real property or leases any real property other than as listed on Item 13 of the Addendum; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Item 13 of the Addendum; and (iv) a true, correct and complete list and brief description of all bank accounts maintained by each Borrower with any bank or financial institution is set forth on Item 14 of the Addendum.

(h)Intellectual Property. Borrowers represent and warrant to Agent and the Lenders that, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Item 15 of the Addendum is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Borrower is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, to the best knowledge of Borrowers, after reasonable inquiry, threatened in writing to be brought against any Borrower which would be reasonably likely to jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications.

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(i)Leases. Borrowers represent and warrant that, each Borrower enjoys peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by a Borrower exists under any of them.

(j)Material Contracts. Borrowers represent and warrant that, set forth on Item 16 of the Addendumis a description of all Material Contracts of the Borrowers, showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the applicable Borrower and, to the best of Borrowers’ knowledge, each other Person that is a party thereto in accordance with its terms, (b) is not in default due to the action or inaction of any Borrower and (c) neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under any Material Contract.

(k)Customers and Suppliers. Borrowers represent and warrant that, set forth on Item 17 of the Addendum is a list of the top 20 largest customers of the Credit Parties and the top 20 largest suppliers of Credit Parties, in each case for the year ended December 31, 2007 and the six-month period ended June 30, 2008. Except as contemplated by the BT Receivables Agreement, there has not been, and none of Credit Parties have received notice of, any termination or cancellation of, or a materially adverse modification or change in, the business relationship with any of the 10 largest customers and suppliers, and, to the knowledge of Credit Parties, such customers and suppliers intend to renew their customer or supplier contracts, as applicable, in the ordinary course and on terms as favorable as those currently in place.

(l)Taxes. Borrowers represent and warrant that, each of the Credit Parties has filed all federal, state, and other tax returns and reports required to be filed, and have paid all federal, state, and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable.

(m)FCC Licenses, Etc. Except for any change of control or similar applications to be filed with respect to Vanco as described in Item 29 of the Addendum, Borrowers represent and warrant that, all FCC, state public utility commission and other required permissions and licenses are in good standing, and that Borrowers are not aware of any claim, purported claim or unrealized claim against the validity of the Borrowers’ ability to operate now and into the future under such existing licenses.

(n)Working Capital. Borrowers represent and warrant that after giving effect to the transactions contemplated in the Debenture Documents and this Agreement (i) the Borrowers, on a consolidated basis, have not less than (a) ($8,453,687) in Adjusted Working Capital and (b) not less than $6,000,000 in cash;  and (ii) the aging and collectability of the Borrowers' accounts receivable is in all material respects similar to the aging and collectability of the accounts receivable reflected by the financial statements delivered to Agent pursuant to Item 2(p) of the Addendum. 

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5. Collateral.

(a)Grant of Security Interest. To induce the Lenders to accept this Agreement and to make the Term Loan to Borrowers, each Borrower hereby grants to Agent, for itself and as agent for each Lender, a security interest in, and assigns, mortgages and pledges to Agent, for itself and as agent for any each Lender, all of such Borrower’s right, title and interest in and to all of such Borrower’s property (other than Excluded Equipment), whether real or personal, tangible or intangible, now owned or existing or hereafter acquired or arising, including all of the following (collectively, the “Collateral”):

(i)all Accounts,Inventory, Equipment (other than Excluded Equipment), Goods, General Intangibles, Intellectual Property and Negotiable Collateral;

(ii)all investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts and all funds on deposit therein;

(iii)all chattel paper (whether tangible or electronic) and contract rights;

(iv)all guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral;

(v)all documents, books and records relating to any Collateral or to any Borrower’s business;

(vi)all Governmental Approvals and all proceeds from Governmental Approvals, but in each case only to the extent permitted under applicable law (including, without limitation, the Communications Act of 1934);

(vii)all other property of any Borrower now or hereafter in the possession or control of Agent or any of Agent’s Affiliates (including cash, money, credits and balances of any Borrower held by or on deposit with Agent or any Affiliate of Agent);

(viii)all other assets of any Borrower in which Agent receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody or control of Agent or any Affiliate of Agent;

(ix)all of each Borrower’s commercial tort claims listed on (A) Item 18 of the Addendum(which Borrowers represent and warrant is a true, accurate and complete list of all of each Borrower’s commercial tort claims as of the Agreement Date) or (B) any other writing provided to Agent pursuant to Section 7(g); and

(x)all proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing.

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(b)Obligations. Such grant, assignment, mortgage and transfer is made for the purpose of securing, and the Collateral secures and will continue to secure, all of the Obligations; provided that upon satisfaction of all Obligations other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement, the Lenders shall release any Liens in the Collateral.

(c)Excluded Equipment. Borrowers agree that Agent shall automatically have a security interest in the Excluded Equipment promptly after receiving any Governmental Approvals required for the lawful grant of such security interest. Borrowers agree to execute and deliver to Agent such security agreements and other documents confirming such grant as Agent may reasonably request, but any failure to do so shall not limit Agent’s security interest therein pursuant to the first sentence of this paragraph. Each Borrower represents and warrants to Agent that it does not own any Excluded Equipment.

6.Financial Covenants. Unless the Required Lenders shall otherwise consent in writing, the Borrowers, on a consolidated basis, shall comply with each of the financial covenants set forth on Item 19 of the Addendum.

7.Collateral Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 7, unless the Required Lenders shall otherwise consent in writing.

(a)Accounts. Borrowers will notify Agent promptly of and settle all Customer disputes, but, if Agent so elects while a Default exists, Agent will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and conditions as Agent deems advisable without incurring liability to any Borrower for Agent’s performance of such acts. Agent may, at any time and from time to time, contact Customers to verify Accounts and, while a Default exists, Agent may notify Customers of Agent’s security interest in the Accounts and instruct such Customers to pay such Accounts to one of the bank accounts listed on Item 14 of the Addendum. All of each Borrower’s books and records concerning Accounts and a copy of each Borrower’s general ledger will be maintained at the address of Borrowers’ chief executive office set forth on Item 11 of the Addendum. All Accounts will be, in all material respects and except as otherwise indicated in writing to Agent, bona fideand existing obligations of Customers arising out of the sale of goods and/or the rendering of services by Borrowers in the ordinary course of Borrowers’ business, owned by and owing to the applicable Borrower without defense, setoff or counterclaim, and will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens.

(b)Inventory. All Inventory will at all times be located at one of the Inventory locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum, will be subject to a perfected, first-priority security interest in Agent’s favor and will be free and clear of all Liens other than Permitted Liens. Sales of Inventory will be made in compliance with all material requirements of applicable law.

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(c)Equipment. Borrowers will maintain all Equipment used or useful in Borrowers’ business in good and workable condition, ordinary wear and tear excepted, and, except for Excluded Equipment only for the first 90 days after the Agreement Date, subject to a perfected, first-priority security interest in Agent’s favor and free and clear of all other Liens (other than Permitted Liens), at one of the locations set forth on Item 11 of the Addendum as the current location of Borrowers’ chief executive office or a current location of other Collateral set forth on the Addendum.

(d)Defense of Title. All Collateral will at all times be owned by Borrowers, and Borrowers will defend Borrowers’ title to the Collateral against the claims of third parties. Borrowers will at all times keep accurate and complete records of the Collateral.

(e)Perfection; Further Assurances. No Borrower shall change its name, jurisdiction of organization, type of organization or organizational identification number; provided, however, that Vanco may change its name to “Global Capacity Direct, LLC” so long as Borrowers provide Agent with at least 5 Business Days’ notice of such name change. Borrowers will give Agent at least 30 days’ prior written notice of any change in the location of any Borrower’s principal place of business or chief executive office, any change in the locations of any Borrower’s Inventory or Equipment and any acquisition by any Borrower of any interest in real property. Each Borrower will, at Borrowers’ expense, promptly execute and deliver from time to time at Agent’s request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary or desirable to perfect or continue perfection of Agent’s security interest in Borrowers’ property or, at Agent’s request, to create and perfect a Lien on newly acquired real property. Borrowers will use all reasonable efforts to obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Agent’s favor with respect to such Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers shall, immediately upon written request therefor from Agent, endorse and assign such Negotiable Collateral over to Agent and deliver actual physical possession of the Negotiable Collateral to Agent. Borrowers shall at any time and from time to time take such steps as Agent may request for Agent (i) to obtain an acknowledgment, in form and substance satisfactory to Agent, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Agent, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or chattel paper (including electronic chattel paper) in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Agent, (iii) to have Agent’s Lien noted on each certificate of title evidencing any Collateral, and (iv) otherwise to insure the continued perfection and priority of Agent’s security interest in any of the Collateral and of the preservation of its rights therein. Agent may, from time to time at Borrowers’ expense, obtain an appraisal on some or all of the Collateral; provided, however, that Borrowers shall not be required to reimburse Agent for more than one such appraisal per calendar year (it being understood that any such appraisal conducted while a Default exists shall not count against such one-per-year limitation).

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(f)Insurance. Borrowers will obtain and maintain in full force and effect insurance covering the Collateral against all customary risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such customary risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent, which policies will name Agent, for itself and each of the Lenders, as an additional insured and provide that loss thereunder will be payable to Agent as Agent’s interests may appear upon a loss payee endorsement reasonably acceptable to Agent. Borrowers will also obtain and maintain in full force and effect liability insurance and such other types of insurance as Agent may reasonably require (including business interruption insurance), in each case against such risks, in such amounts, with such companies, under such policies and in such form as will be reasonably satisfactory to Agent. All proceeds of any such insurance will be paid over to Agent directly, and Agent may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Agent determines or, in Agent’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property. Borrowers will provide to Agent on or prior to the Agreement Date and from time to time thereafter, certificates showing such coverage in effect and, at Agent’s request, the underlying policies.

(g)Commercial Tort Claims. If any Borrower shall at any time acquire a commercial tort claim, Borrowers shall immediately notify Agent in a writing signed by the applicable Borrower of the details thereof and grant to Agent, for itself and each of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.

(h)Financing Statements. Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrowers or words of similar effect and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the applicable Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and each Borrower hereby ratifies and re-authorizes any such financing statement filed by Agent on or prior to the Agreement Date. Each Borrower agrees to furnish any such information to Agent promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Agent on behalf of any Borrower or filed by Agent without the signature of any Borrower and may be filed at any time in any jurisdiction. Each Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any Borrower as the debtor and Agent as the secured party without the prior written consent of Agent, and each Borrower agrees that it shall not do so without the prior written consent of Agent.

(i) Governmental Approvals.

(i)Each Borrower shall maintain in full force and effect all Governmental Approvals required by applicable law in order to operate such Borrower’s business, except for those Governmental Approvals, the absence of which could not reasonably be expected to result in a Material Adverse Effect. Borrowers shall promptly notify Agent in the event that any such license or approval is revoked or if any Borrower receives any notice from any licensing authority or other governmental authority which alleges that any Borrower is or may be in violation of any applicable law, rule, regulation or licensing requirement.

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(ii)Borrowers shall, as described below, act immediately, upon notice of a Default, to permit Lender to realize the full value of foreclosure on the Collateral, including, without limitation, by obtaining any and all regulatory approvals required to do so. For example, and without limitation of the foregoing, if the approval of the FCC or any state public service commission is required in connection with any action taken by the Agent or any Lender (including any of their respective agents, officers, and attorneys) in the exercise of their rights and remedies hereunder with respect to the Collateral, in order to facilitate the intended realization of the value of the Collateral the Borrowers shall immediately and in no event later than three (3) Business Days following notice thereof take such action as is requested by Lender or Agent to obtain each and any approval required to allow a Lender the full benefit of the Collateral and Borrowers shall diligently pursue the obtaining of such approvals until obtained in accordance with the instructions of Agent or a Lender and applicable law. For avoidance of doubt, and by way of example, immediately upon notice thereof, Borrowers shall or shall cause their counsel to prepare, or at the option of Agent or a Lender to cooperate with counsel of Agent or a Lender in preparing, relevant applications to the FCC and each applicable state public service commission to seek approval of a substantial transfer of control of the applicable Borrower or its licenses and authorizations as instructed by Agent or a Lender, or to do any other action to protect for a Lender the value of the applicable Borrower’s licenses and authorizations. Without diminution of the foregoing, the Borrowers shall, immediately following the occurrence of a Default which is continuing, upon the written request and instructions of the Agent, execute and deliver (or cause the execution and delivery of) all relevant applications, certificates, instruments, agreements and other documents to the FCC or the applicable state public service commission, or at the option of Agent or a Lender, to Agent or a Lender for filing with Borrowers’ cooperation, which are required to be filed in connection with obtaining any required approval of the FCC or any state public service commission and take such other action as the Agent may request in connection therewith.

(j) Conduct of Business. The Borrowers shall conduct their business in substantially the same manner as currently conducted.

(k) Bank Accounts.

(i)The Borrowers (other than Magenta) will maintain their principal accounts for operation, administration, cash management and other deposit accounts for the conduct of the Borrowers’ business with the Depository Bank. On or prior to the Agreement Date, the Borrowers will establish and maintain (so long as the Obligations are outstanding), the Private Bank Account Control Agreement, which shall be applicable to all bank accounts of the Borrowers, other than the bank account maintained by Magenta in the United Kingdom and the account subject to the HSBC Account Control Agreement.

(ii) Magenta will maintain a single bank account (as disclosed to Agent on Item 14 of the Addendum) with HSBC Bank plc (the “Magenta Account”). On or prior to the Agreement Date, Magenta will establish and maintain (so long as the Obligations are outstanding), the Magenta Three-Party Account Agreement, pursuant to which all amounts deposited in the Magenta Account in excess of £75,000 shall automatically be transferred (on a daily basis if applicable) to the account of Borrowers identified in the Magenta Three-Party Account Agreement which is subject to the HSBC Account Control Agreement.

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(l)Employment Agreements. The non-compete provisions contained in the Employment Agreements shall remain in full force and effect and shall not be amended, modified or waived without the Agent’s written consent.

8.Negative Covenants. So long as any principal of or interest on the Term Loan or any other Obligation (whether or not due) shall remain unpaid (other than inchoate indemnification obligations and obligations under the warrant or the registration rights agreement), the Borrowers shall comply with the covenants set forth in this Section 8, unless the Required Lenders shall otherwise consent in writing.

(a)No Merger or Disposition of Assets. No Borrower will merge or consolidate with any other Person, or purchase all or substantially all of the assets of any other Person, or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of such Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, each Borrower may make Permitted Dispositions.

(b)No Debt or Liens; Taxes. No Borrower will obtain or attempt to obtain from any Person other than Agent any loans, advances, or other financial accommodations or other Indebtedness of any kind, nor will any Borrower enter into any direct or indirect guaranty of any obligation of another Person, other than Permitted Indebtedness. No Borrower will permit any of its assets to be subject to any Lien other than Permitted Liens. Each Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrowers will, upon request by Agent, promptly furnish Agent with proof satisfactory to Agent that Borrowers have made such payments and deposits.

(c)No Distributions; Payments on Subordinated Debt. No Borrower will retire, repurchase or redeem any of such Borrower’s Stock in such Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of Stock) to any owner or holder of such Borrower’s Stock; provided, however, that any Borrower may pay cash dividends or distributions to any other Borrower which owns such Borrower’s Stock. No Borrower will refinance, repurchase, defease or make any payment on any Subordinated Debt, other than payments expressly permitted by the Debenture Intercreditor Agreement or subordination provisions applicable to such Subordinated Debt.

(d)No ERISA Liabilities. Borrowers will make timely payments of all contributions required to meet the minimum funding standards for Borrowers’ employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”) and will promptly report to Agent the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by any Borrower of any governmental notice (other than routine requests for information) in respect of any such plan.

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(e)Transactions with Affiliates. No Borrower will engage in any transaction with any of such Borrower’s or any other Borrower’s officers, directors, employees or other Affiliates, except for an “arms-length” transaction on terms no less favorable to such Borrower than would be granted to such Borrower in a transaction with a Person who is not an Affiliate of any Borrower, which transaction shall be approved by such Borrower’s disinterested directors or managers and shall be disclosed in a timely manner to Agent prior to the consummation of the transaction.

(f)Loans/Investments. No Borrower will make any loans or advances to or extend any credit to any Person except (i) the extension of trade credit to customers in the ordinary course of business; and (ii) Permitted Investments. No Borrower shall purchase, acquire or otherwise invest in any Person except Permitted Investments and investments in other Borrowers; provided, however, that the aggregate amount of intercompany advances and other transfers to Magenta by the other Borrowers shall not exceed the actual cash expenses of Magenta, which such actual cash expenses shall be in the ordinary course and consistent with past practices of Magenta. Without limiting the generality of the foregoing, no Borrower shall create any new subsidiary or make loans to, transfer any money or other assets to or otherwise invest in any subsidiary unless such subsidiary is or becomes a Borrower hereunder pursuant to documentation acceptable to Agent in its reasonable discretion.

(g)Capital Expenditures. Borrowers shall not make or incur capital expenditures in excess of the amount set forth on Item 21 of the Addendum during any fiscal year, determined for all Borrowers on a consolidated basis.

(h)Compensation. Borrowers shall not increase the total compensation paid to their officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year of Borrowers in an aggregate amount for all such officers and directors in excess of the limit specified in Item 22 of the Addendum.

(i)Amendments of Documents. No Borrower shall amend or modify (i) any Acquisition Document or any other note, instrument or agreement in connection with the Acquisition without the prior written consent of Agent, (ii) its articles or certificate of incorporation, articles or certificate of organization, by-laws, limited liability company agreement or other constituent documents, or (iii) any Debenture Document or any other note, instrument or agreement in connection with any other Subordinated Debt without the prior written consent of Agent; provided, however, that Borrowers may amend the Debenture Documents without the consent of the Agent to the extent expressly permitted by the Debenture Intercreditor Agreement.

(j)Capitalized Leases. The Borrowers, taken as a whole, shall not incur greater than $500,000 in additional Capitalized Lease Obligations after the date hereof; providedfurther, that such Capitalized Lease Obligations shall be (i) on terms and conditions consistent with current market conditions for equipment of that kind, and (ii) solely for the purchase and/or lease of new pieces of or as a replacement of existing equipment.

(k)Use of Proceeds. Borrowers shall not use the proceeds of the Term Loan for any purpose other than (i) consummating the Acquisition, and (ii) general working capital purposes.

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(l)BT Receivable. Borrowers shall not compromise or settle any dispute, provide a discount, write-off, or waive collection of any part of the BT Receivable without the prior written consent of the Agent.

9. Reporting and Information.

(a)Financial StatementsBorrowers will submit to Agent as soon as available, and in any case not later than thirty (30) days after the end of each month, a balance sheet and a detailed statement of profit and loss by business unit and a statement of cash flows, in each case prepared in accordance with GAAP on a consolidated (and, if requested by Agent, consolidating) basis, certified by the chief financial or accounting officer of Parent as presenting fairly, in accordance with GAAP, Borrowers’ financial condition as of the last day of such month and Borrowers’ results of operations for such month and for the portion of Borrowers’ fiscal year ending with such month. Borrowers will also submit to Agent annual financial statements within 120 days after the end of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders’ equity, and a statement of cash flows, in each case prepared in accordance with the requirements set forth on Item 23 of the Addendum on a consolidated (and, if requested by Agent, consolidating) basis. Borrowers will also submit to Agent annually at least 60 days prior to Borrowers’ fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement on a consolidated (and, if requested by Agent, consolidating) basis. Together with each monthly and annual financial statement, Borrowers will deliver to Agent the certification of the chief financial or accounting officer of Parent in the form of Exhibit B attached hereto to the effect that Borrowers are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if Borrowers are not in compliance, describing the nature of any noncompliance and the steps Borrowers are taking or propose to take to remedy the same. Borrowers shall, promptly, upon request, furnish such other information concerning the condition, operations, financial or otherwise, of any Borrower as the Agent may from time to time request.

(b)Collateral Reports. Borrowers shall deliver to Agent within fifteen (15) days after the end of each month a report, reflecting the status as of the end of each month or for the month then ended, as the case may be, and certified by the Chief Executive Officer or Chief Financial Officer of Parent as being true and correct in all material respects, containing (i) a current detailed aging, by total and by Customer, of Borrowers’ Accounts, (ii) a current detailed aging, by total and by vendor, of Borrowers’ accounts payable, (iii) a schedule detailing loans and intercompany transfers to Magenta from any other Borrower, and (iv) a true, correct and complete copy of each new material contract entered into by any Borrower for the sale, lease or other provision of goods or services by such Borrower and for the lease or purchase of circuit capacity by any Borrower, all of which shall be set forth in a form and shall contain such information as is reasonably acceptable to Agent. At Agent’s request, Borrowers shall deliver such information more or less often than described above and such other information with respect to the Collateral, Borrowers or Borrowers’ business or financial condition as Agent may reasonably request from time to time.

(c)Tax Returns. Borrowers shall provide Agent with a copy of all federal tax returns of each Borrower no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

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(d)SEC Filings. Borrowers shall provide Agent with a copy of all reports and other filings made by Borrowers with the Securities and Exchange Commission no later than seven days after the earlier of (i) the filing date thereof, or (ii) the deadline for filing with respect thereto (giving effect to any applicable extension in accordance with applicable law).

(e)BT Receivable. Borrowers will submit to Agent, promptly, and in any case not later than (i) one (1) day following each receipt of a BT Receivable Payment and (ii) two (2) Business Days after the end of each month, a reconciliation and report showing any amounts collected with respect of the BT Receivable, the amount left uncollected and, any issues, disputes and offsets with respect to collection of the BT Receivable, and such additional information with respect thereto as requested by Agent.

(f)Monthly Recurring Circuit Revenue and Recurring Circuit Margin. Borrowers will submit to Agent, as soon as available, and in any case not later than thirty (30) days after the end of each month, a summary of Monthly Recurring Circuit Revenue and Recurring Circuit Margin for the Strategic Sourcing Business Unit.

(g)Other Information. Borrowers will notify Agent as promptly as possible of any Default, any receipt by any Borrower of notice from any governmental authority that any Borrower has or may have violated any law, rule or regulation applicable to any Borrower or the terms or conditions of any permit or license any Borrower holds or is required to hold in connection with the conduct of such Borrower’s business, any amendment to any Borrower’s constituent documents and any change in any Borrower’s senior management, and the commencement of any material litigation, claim or action by or against any Borrower.

10. Inspection Rights; Expenses; Etc.

(a)Field Examinations; Inspections. Agent and any of the Lenders, shall have the right without hindrance or delay to conduct field examinations to inspect the Collateral, all other assets of Borrowers or any portion thereof, Borrowers’ books and records and all other aspects of Borrowers’ business, and to examine and make copies of Borrowers’ records, the Collateral and all other assets of Borrowers or any portion thereof, in each case wherever located, and Agent and any of the Lenders may enter upon each Borrower’s premises for such purposes, without notice, during business hours. Borrowers will assist Agent and any of the Lenders in whatever way necessary to make each such examination, and Borrowers agree to pay for such examinations as more fully described on Item 24 of the Addendum. Agent and any of the Lenders may discuss each Borrower’s financial condition with Borrowers’ independent accountants without liability to Agent or any of the Lenders or such accountants. Agent and any of the Lenders shall have full access to all records available to Borrowers from any credit reporting service, bureau or similar service and shall have the right to examine and make copies of any such records. Agent and any of the Lenders may exhibit a copy of this Agreement to such service and such service shall be entitled to rely on the provisions hereof in providing access to Agent and any of the Lenders as provided herein.

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(b)Performance by Agent. Agent may, from time to time at Agent’s option, perform any agreement of any Borrower hereunder which such Borrower fails to perform and take any other action which Agent deems necessary for the maintenance or preservation of any of the Collateral or Agent’s interest therein, and Borrowers agree to reimburse Agent immediately on demand for all of Agent’s expenses in connection with the foregoing (including, without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense is incurred until reimbursed by Borrowers.

11.Rights of Setoff, Application of Payments, Etc. Agent and any of the Lenders will be entitled to hold or set off all sums and all other property of any Borrower at any time to any Borrower’s credit or in Agent’s or any Lender’s possession (or the possession of any of Agent’s or Lender’s Affiliates) by pledge or otherwise or upon or in which Agent or any of the Lenders may have a Lien, as security for any and all of the Obligations. Recourse to the Collateral or other security for the Obligations will not at any time be required and each Borrower hereby waives any right of marshalling that such Borrower may have. Each Borrower’s obligation to pay or repay the Obligations is unconditional. Borrowers agree that, while a Default exists, Agent or any of the Lenders may take such action with regard to the custody and collection of Accounts as Agent or any of the Lenders may deem necessary. Each Borrower agrees that failure to take any action with regard to any given Account will not be unreasonable until and unless Agent receives a written request for specific action from Borrowers’ Agent with regard thereto and fails to respond thereto within a commercially reasonable time. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any of the Lenders from or on behalf of any Borrower, and each Borrower hereby irrevocably agrees that Agent or any of the Lenders shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or any of the Lenders against the Obligations, in such manner and in such order as the Lenders may deem advisable.

12.Attorney-in-Fact. Each Borrower hereby appoints and constitutes Agent as such Borrower’s attorney-in-fact: (a) at any time, (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Agent’s possession and to deposit or otherwise collect the same; (ii) to send verifications of Accounts to Customers; and (iii) to execute in such Borrower’s name any financing statements, affidavits and notices with regard to any and all Lien rights; and (b) while any Default exists, (i) to receive, open, and dispose of all mail addressed to such Borrower; (ii) to notify the postal authorities to change the address and delivery of mail addressed to such Borrower to such address as Agent may designate; (iii) to sign such Borrower’s name on any invoice or bill of lading relating to the Collateral, on drafts against Customers, and notices to Customers; (iv) to sign any agreement or certificate in connection with any insurance policy of any Borrower (including all documentation to receive benefit payments thereunder and to cancel such insurance policy and receive a refund of the unearned premium with respect thereto); and (v) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Agent has any commitment to Borrowers under this Agreement or otherwise (other than inchoate indemnification obligations, unless Agent determines in its reasonable discretion that any such indemnification obligations are likely to become actual obligations and other than inchoate indemnification obligations and obligations under the warrant and the registration rights agreement).

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13. Defaults and Remedies.

(a)Defaults. For purposes of this Agreement, “Default” means the occurrence of any of the following events: (i) non-payment when due of any amount payable on any of the Obligations (in the case of non-payment of interest only, including, but not limited to any non-payment of PIK Interest pursuant to Section 3(b), if such non-payment continues one (1) Business Day after the date when due and for the avoidance of doubt, the default margin identified on Item 4 of the Addendum shall be applicable during the non-payment period); (ii) breach of any covenant or failure to perform any agreement or failure to meet any of any Credit Party’s obligations contained herein, in any other Loan Document or in any agreement out of which any of the Obligations arose if such failure continues for five (5) Business Days (excluding Sections 8, 9, 7(f), and 7(k), where no cure period shall be applicable); (iii) any statement, representation, or warranty made in writing in this Agreement, in any other Loan Document or in any other writing or statement at any time furnished or made or deemed furnished or made by any Credit Party to Agent proves to have been untrue in any material respect as of the date furnished or made or deemed furnished or made; (iv) any event of default shall occur (after giving effect to any applicable notice and cure period) under the Debenture Documents, or any Borrower’s default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 25 of the Addendum (after giving effect to any applicable notice and cure period); (v) suspension of the operation of any Borrower’s present business; (vi) any Borrower becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts, makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended (or under any analogous law of any other jurisdiction), is filed by or against any Borrower; (vii) entry of any judgment in excess of the amount set forth on Item 26 of the Addendum against any Borrower or creation, assertion, or filing of any judgment or tax Lien against the property of any Borrower, in each case which remains undischarged for thirty (30) days after such entry or filing; (viii) death or withdrawal of any partner of any Borrower which is a partnership, or dissolution, merger, or consolidation of any Borrower which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any Borrower; (x) sale, transfer or exchange, either directly or indirectly, of a controlling Stock interest of any Credit Party (without limiting the generality of the foregoing, a Default shall exist if (A) Parent shall cease to own, directly or indirectly, 100% of the Stock of any other Borrower or cease to have direct or indirect voting control of any other Borrower (excluding Vanco until the Final Closing), (B) any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty-five percent (25%) of the voting power of all classes of stock of Parent; (xi) appointment of a receiver for any of the Collateral or for any other property in which any Credit Party has an interest; (xii) seizure of any Collateral by any Person other than Agent; (xiii) any person identified on Item 27 of the Addendum shall for any reason cease to hold the office of the applicable Borrower set forth opposite such person’s name on Item 27 of the Addendum (or any such person shall cease to perform the duties generally associated with such office) and a replacement reasonably satisfactory to Agent shall not be appointed within 90 days; (xiv) the occurrence of any act, omission, event or circumstance which has or could reasonably be expected to have a Material Adverse Effect; (xv) payment by any Borrower on the Debenture Indebtedness or any other Subordinated Debt in violation of the Debenture Intercreditor Agreement or any other applicable subordination agreement; (xvi) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any Borrower’s employee pension benefit plans; (xvii) any event of default shall occur under (after giving effect to any applicable notice and cure period) under the Acquisition Documents (other than a termination of the Management Agreement as a result of the Final Closing); (xviii) the Final Closing shall have not occurred by ninety-one (91) days from the Agreement Date; or (xix) except for Transfer Applications (as such term is defined in the Interest Purchase Agreement) to be approved by the applicable regulatory authorities in California, Pennsylvania and Tennessee (which such Transfer Applications shall in any event be approved within one hundred twenty (120) days), any Transfer Application shall not have been approved by the earliest to occur of (A) expiration of the STA Requests unless replaced by a permanent authorization and (B) ninety (90) days from the date of this Agreement.

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(b)Remedies. If a Default occurs and is continuing, in each case without demand or notice to any Borrower, any other Credit Party or any other Person (unless such notice is expressly required hereunder or under applicable law), the Required Lenders may authorize and instruct the Agent to do any one of the following on behalf of the Lenders, all of which such actions are, subject to any applicable law to the extent any such law may not be waived, permitted under this Agreement:

(i)declare the entire principal amount of the Term Loan outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination and acceleration shall automatically occur without any notice, demand or presentment of any kind.

(ii)notify Customers that the Accounts have been assigned to Agent and that Agent has a security interest therein, collect them directly, and charge the collection costs and expenses to Borrowers’ loan account.

(iii)exercise any right or remedy available to any Borrower under one or more contracts of such Borrower and sell or otherwise dispose of any such contract.

(iv)(A) exercise any of its remedies under any other Loan Document, (B) apply any cash collateral to the Obligations (without limiting the foregoing, Agent may instruct any bank or other financial institution holding any cash, certificate of deposit or other Collateral to pay over such Collateral to Agent), and (C) draw on any letter of credit issued for the benefit of Agent in connection with this Agreement or any other Loan Document and apply the proceeds thereof to the Obligations.

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(v)make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral. Borrowers authorize Agent or any of the Lenders to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any Lien which in Agent’s opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

(vi)ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale.

(vii)without regard to any waste, adequacy of the security or solvency of any Borrower, apply for the appointment of a receiver of the Collateral, to which appointment each Borrower hereby consents, whether or not foreclosure or repossession proceedings have been commenced hereunder or under any other Loan Document and whether or not a foreclosure sale or secured party sale has occurred.

(viii)cancel any insurance policy of any Borrower in exchange for a refund of the unearned premium with respect thereto, and each Borrower hereby authorizes any insurance company which has issued any such policy to make such payment directly to Agent for application to the Obligations;

(ix)exercise any of the remedies available to Agent as a secured party under the UCC as in effect in any applicable jurisdiction, or otherwise available to Agent under applicable law. Borrowers agree, upon demand by Agent or any of the Lenders, while a Default exists, to cease the sale or other disposition of the Collateral, except with Agent’s prior written consent, and to assemble at Borrowers’ expense all the Collateral at a convenient place acceptable to Agent. Agent may charge to Borrowers’ loan account and Borrowers will pay Agent upon demand all costs and expenses, including reasonable attorneys’ fees (including fees of attorneys that are regular salaried employees of Agent or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment, compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Agent or against any Borrower concerning any matter growing out of or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Agent pays any state, city, local, federal, or other tax or levy attributable to the Collateral (excluding taxes on income realized by Agent), Borrowers will repay to Agent the amount of tax so paid by Agent. Borrowers agree that Agent may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by Liens prior to Agent’s security interest. Borrowers will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Agent or any of the Lenders.

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(c)Notices. If any notice of intended disposition of the Collateral or of any other act by Agent is required by law or court order and a specific time period is not stated therein, such notice, if given five (5) Business Days before such disposition or act, in accordance with the provisions of Section 16(a), will be deemed reasonably and properly given.

(d)License. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and each Borrower agrees that all of its rights under all licenses and all franchise agreements shall inure to Agent’s benefit.

(e)Remedies Cumulative. Agent’s and any Lender’s rights and remedies under this Agreement and all other Loan Documents shall be cumulative. Agent and any of the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Agent or any of the Lenders of one right or remedy shall be deemed an election, and no waiver by Agent or any of the Lenders of any default on Borrowers’ part shall be deemed a continuing waiver. No delay by Agent or any of the Lenders shall constitute a waiver, election or acquiescence by it.

14. Agent.

(a)Appointment. Each Lender hereby irrevocably appoints and authorizes the Agent to perform the duties of the Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Term Loan outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to the Agent, and, subject to Section 2 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agent shall not have any liability to the Lenders for the Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Term Loan, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Term Loan and Agent Advances, for the Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Credit Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by the Agent of the rights and remedies specifically authorized to be exercised by the Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 14(c) of this Agreement, to take such action as the Agent deems appropriate on its behalf to administer the Term Loan and the Loan Documents and to exercise such other powers delegated to the Agent by the terms hereof or the other Loan Documents (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Term Loan), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of the Term Loan; provided, however, that the Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law.

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(b)Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the making and the continuance of the Term Loan hereunder and shall make its own appraisal of the creditworthiness of the Credit Parties and the value of the Collateral, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Term Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, the Agent shall provide to such Lender any documents or reports delivered to the Agent by the Credit Parties pursuant to the terms of this Agreement or any other Loan Document. If the Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender any time that the Required Lenders have instructed the Agent to act or refrain from acting pursuant hereto.

(c)Rights, Exculpation, Etc.The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agent (i) may treat the payee of the Term Loan as the owner thereof until the Agent receives written notice of the assignment or transfer thereof, pursuant to Section 16(f) hereof, signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including, without limitation, counsel to the Agent or counsel to the Credit Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counselor experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the Agent's Lien thereon, or any certificate prepared by any Borrower in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The Agent shall not be liable for any apportionment or distribution of payments made in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders.

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(d)Reliance.The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

(e)Indemnification. To the extent that the Agent is hot reimbursed and indemnified by any Credit Party, the Lenders will reimburse and indemnify the Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including, without limitation, advances and disbursements made pursuant to Section 14(h); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from the Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 14(e) shall survive the payment in full of the Term Loan and the termination of this Agreement.

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(f)Agent Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of the Term Loan. The terms “Lenders” or “Required Lenders” or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Required Lenders. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrowers as if it were not acting as the Agent pursuant hereto without any duty to account to the other Lenders.

(g)Successor Agent.

(i) The Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at least 30 Business Days' prior written notice to the Borrowers and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below.

(ii) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Agent, and the Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After the Agent's resignation hereunder as the Agent, the provisions of this Paragraph 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the other Loan Documents.

(iii) If a successor Agent shall not have been so appointed within said 30 Business Day period, the Agent shall then appoint a successor Agent who shall serve as the Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above

(h)Collateral Matters.

(i) The Agent may from time to time make such disbursements and advances (“Agent Advances”) which the Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Term Loan and other Obligations or to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 16(j). The Agent Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate of interest then applicable to the Term Loan. The Agent Advances shall constitute Obligations hereunder. The Agent shall notify each Lender and the Borrowers in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation to its obligations pursuant to Section 14(e), each Lender agrees that it shall make available to the Agent, upon the Agent's demand, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to the Agent by such Lender, the Agent shall be entitled to recover such funds on demand from such Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Agent at the Default Rate.

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(ii) The Lenders hereby irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral upon termination of the Total Commitment and payment and satisfaction of the Term Loan and all other Obligations which have matured and which the Agent has been notified in writing are then due and payable; or constituting property being sold or disposed of in the ordinary course of Borrower's or any of its Subsidiaries' business or otherwise in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which neither Borrowers nor any of their Subsidiaries owned any interest at the time the Lien was granted or any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 14(h)(i).

(iii) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 14(h(ii)), each Lender agrees to confirm in writing, upon request by the Agent, the authority to release Collateral conferred upon the Agent under Section 14(h)(ii). Upon receipt by the Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Credit Party, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent and the Lenders upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Credit Party in respect of) all interests in the Collateral retained by Borrowers or any of their Subsidiaries.

(iv) The Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Credit Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent in this Section 14(h) or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein.

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(i)Agency for Perfection. Each Lender hereby appoints the Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and the Agent and each Lender hereby acknowledges that it holds possession of or otherwise controls any such Collateral for the benefit of the Agent and the Lenders as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. In addition, the Agent shall also have the power and authority hereunder to appoint such other sub-agents as may be necessary or required under applicable state law or otherwise to perform its duties and enforce its rights with respect to the Collateral and under the Loan Documents. Borrowers by their execution and delivery of this Agreement hereby consents to the foregoing.

15.Indemnification.

(a)Borrowers jointly and severally agree to defend, indemnify, and hold harmless Agent and Agent’s and any of the Lender’s participants, directors, officers, employees, Affiliates, representatives, attorneys and agents (each an “Indemnified Person”) from and against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or threatened release of any hazardous materials in connection with any Borrower’s business on, at or from any property at any time owned or operated by any Borrower, including, without limitation, reasonable attorneys’ and consultants’ fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. Without limiting the foregoing and for purposes other than Capstone Investments, Borrowers represent and warrant that there has been no loan broker or investment banker involved in connection with the transactions contemplated hereby, and Borrowers agree to indemnify and hold Agent and any of the Lenders and their participants harmless from any claim of compensation payable to any loan broker or investment banker in connection with the transactions contemplated hereby.

(b)All payments by any Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any and all taxes other than income taxes imposed on Agent or any of the Lenders (“Indemnified Taxes”), unless such Taxes are required by law or the administration thereof to be withheld or deducted. If any Borrower, Agent or Lender or any participant is required by applicable law to deduct or pay any Indemnified Taxes in respect of any payment by or on account of any obligation of a Borrower hereunder or under any other Loan Document, then, if requested by Agent, any Lender or any participant, the sum payable shall be increased by that Borrower by such amount as is necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section), Agent and any of the Lenders and their participants receive an amount equal to the sum Agent and any of the Lenders and such participants would have received had no such deductions or payments been required.

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(c)Borrowers shall indemnify Agent, the Lenders and their participants, within 5 days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, any of the Lenders and their participants and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrowers’ Agent by Agent or any participant shall be conclusive absent manifest error.

(d)As soon as practicable after any payment of Indemnified Taxes by a Borrower to a governmental authority, Borrowers’ Agent shall deliver to Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

16.General Provisions.

(a)Notices. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile transmission, upon transmittal if confirmed by the sender’s facsimile device; provided that in the case of notices to Agent, Agent will be charged with knowledge of the contents thereof only when such notice is actually received by Agent. A telephonic notice to Agent as understood by Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. Notices to Agent or Borrowers will be sent to the addresses set forth on Item 28 of the Addendum, or any other address for Borrowers or Agent of which the other is notified by like notice.

(b)Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Term Loan payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the Term Loan payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Term Loan that is required for the Lenders or any of them to take any action hereunder, (iv) amend the definition of “Required Lenders” or “Pro Rata Share”, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents) or subordinate any Lien granted in favor of the Agent for the benefit of the Lenders (except as otherwise provided in this Agreement and the other Loan Documents), or release the Borrower or (vi) amend, modify or waive this Section 16(b) of this Agreement, in each case, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents.

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(c)No Waiver. No waiver hereunder will be valid unless in writing signed by Required Lenders (or by Agent at the request of the Required Lenders) and then only to the extent therein stated. No delay or failure on Agent’s or any Lender’s part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Agent’s or any Lender’s right to exercise any other right or remedy.

(d)Time of Essence. Time is of the essence of this Agreement.

(e)Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f)Assignments and Participations.

(i) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Credit Party and the Agent and each Lender and their respective successors and assigns; provided, however, that none of the Credit Parties may assign or transfer any of its rights hereunder without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void.

(ii) Each Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Term Loan made by it); provided, however, that (A) such assignment is in an amount which is at least $500,000 or a multiple of $100,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $500,000 or a multiple of $100,000 in excess thereof), (B) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, and such parties shall deliver to the Agent a processing and recordation fee of $5,000 (except the payment of such fee shall not be required in connection with an assignment by a Lender to an Affiliate of such Lender or Related Fund of such Lender), and (C) no written consent of the Agent shall be required in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Agent (or such shorter period as shall be agreed to by the Agent and the parties to such assignment), (1) the assignee thereunder shall become a “Lender” hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (2) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything contained to the contrary in this Section 16(f)(ii), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agent; provided, that (x) the Borrowers and the Agent may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned until such Lender and its assignee shall have executed and delivered an Assignment and Acceptance to the Agent for recordation and (y) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agent or any other Person shall not affect the legality, validity or binding effect of such assignment.

45

(iii) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (A) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (B) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any of its Subsidiaries or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (C) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (D) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (E) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (F) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(iv) The Agent shall, on behalf of the Borrowers, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Term Loan (the “Registered Loans”) owing to each Lender from time to time. Other than in connection with an assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender shall maintain a register comparable to the Register.

46

(v) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any promissory notes subject to such assignment, the Agent shall, if the Agent consents to such assignment and if such Assignment and Acceptance has been completed (A) accept such Assignment and Acceptance and (B) record the information contained therein in the Register.

(vi)A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register) (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or in the case of any assignment by a Lender to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, a register comparable to the Register), together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same) on the Register, the Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.

(vii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the “Participant Register”). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(viii) Any foreign Person who purchases or is assigned or participates in any portion of such Registered Loan shall comply with Section 2(o).

(ix) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Term Loan made by it); provided, that (A) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (C) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (1) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Term Loan, (2) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Term Loan or the fees payable under this Agreement, or (3) actions directly effecting a release of all or a substantial portion of the Collateral or any Credit Party (except as set forth in Section 14(h) of this Agreement or any other Loan Document).

47

(g)Governing Law; Submission to Jurisdiction, Service, Etc. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States Federal Court sitting in New York, New York or any New York state court sitting in New York, New York in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents, and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Each Borrower waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Parent at Borrowers’ address for notices pursuant to this Agreement, and service so made shall be deemed to be completed with respect to all Borrowers five (5) days after the same shall have been so deposited in the United States mails. Nothing herein shall limit the right of Agent or any of the Lenders to bring proceedings against any Borrower or any Affiliate of any Borrower in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent or any of the Lenders or any other holder of any Obligations, or any Affiliate of Agent or any of the Lenders or any other holder of any Obligations, involving, directly or indirectly, any matter in any way arising out of, related to or connected with any Loan Document shall be brought only in a United States Federal Court or New York state court sitting in New York, New York. Nothing in this Agreement shall be deemed or operate to affect the right of Agent or any of the Lenders to serve legal process in any other manner permitted by law or to preclude the enforcement by Agent or any of the Lenders of any judgment or order obtained in such forum or the taking of any action under this Agreement or any other Loan Document to enforce same in any other appropriate forum or jurisdiction.

(h)Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS, EACH LENDER AND AGENT HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. EACH BORROWER, EACH LENDER AND Agent ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

48

(i)Waiver of Hearing. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING AGENT, ANY OF THE LENDERS, THEIR SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH Agent OR ANY OF THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT, IF Agent OR ANY OF THE LENDERS FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW.

(j)Expenses. Borrowers shall pay on demand all of Agent’s and any of the Lender’s costs and expenses in connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of this Agreement, including the reasonable fees and out-of-pocket expenses of Agent’s and any of the Lender’s counsel, in each case whether incurred on, prior or subsequent to the Agreement Date. In addition, Borrowers shall pay any and all stamp and other taxes and recording and filing fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. All provisions in this Agreement providing for the payment or reimbursement of Agent’s or any of the Lender’s attorneys’ fees and expenses include, without limitation, such fees and expenses incurred pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code.

(k)Execution in Counterparts; Execution by Fax or E-Mail; Waiver of Acceptance. This Agreement may be executed in separate counterparts, all of which shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail shall be equally as effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Any party delivering an executed counterpart of this Agreement or any other Loan Document by facsimile or e-mail also shall deliver an original executed counterpart of this Agreement or such other Loan Document, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement or such other Loan Document. To the fullest extent permitted by applicable law, each Borrower waives notice of Agent’s and any of the Lender’s acceptance of this Agreement and the other Loan Documents.

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(l)No Third-Party Beneficiaries. Except as expressly set forth herein, neither (i) any stockholder or owner of any other equity interest in any Borrower, (ii) any of Borrower’s employees or creditors (other than Agent and any of the Lenders and their Affiliates), nor (iii) any other Person claiming by or through any Borrower shall be entitled to rely on this Agreement or have any rights, remedies or claims against Agent or any of the Lenders or any Affiliates of them under or in connection with this Agreement.

(m)Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Agent, the Lenders and Borrowers and supersede all prior agreements and understandings relating to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

50

IN WITNESS WHEREOF, the undersigned have executed this Term Loan and Security Agreement as of the day and year first above written.

Borrowers:

CAPITAL GROWTH SYSTEMS, INC.

By:

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:

Name:

Title:

CENTREPATH, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:

Name:

Title:

FNS 2007, INC.

By:

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL CAPACITY DIRECT, LLC

By:

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:

Name:

Title:

52

Agent and Lender:

ACF CGS, L.L.C.

By:

Name:

Title:

EX-10.9

SECURED TERM LOAN PROMISSORY NOTE

$8,500,000 November __, 2008 Chicago, Illinois

FOR VALUE RECEIVED, the undersigned, CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), CENTREPATH, INC., a Delaware corporation (“Centrepath”), 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), MAGENTA NETLOGIC LIMITED, a company incorporated under the laws of England and Wales (“Magenta”), CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“CG Acquisition”), VANCO DIRECT USA, LLC, t/b/k/a GLOBAL CAPACITY DIRECT, LLC, a Delaware limited liability company (“Vanco”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Magenta, CG Acquisition and Vanco are referred to herein collectively as the “Borrowers”), jointly and severally promise to pay to the order of ACF CGS, L.L.C., a Delaware limited liability company as administrative agent (the “Agent”), at the office of the Agent located at 570 Lexington Avenue, 40^th Floor New York, NY 10022 or such other office as the holder hereof may from time to time designate in writing, in lawful money of the United States of America and in immediate available funds, the principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), together with interest from and after the date hereof on the unpaid principal balance outstanding at a variable rate per annum as set forth in the Term Loan and Security Agreement dated as of even date herewith, between Agent, Borrowers and Lender and the other lenders from time to time party thereto (as amended from time to time, the “Term Loan Agreement”).

This Secured Term Loan Promissory Note (the “Note”) is issued pursuant to the Term Loan Agreement and is entitled to all of the benefits and security of the Term Loan Agreement. All of the terms, covenants and conditions of the Term Loan Agreement and the Loan Documents (as defined in the Term Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Term Loan Agreement.

The rate of interest in effect hereunder shall be calculated with reference to the Section 3, in the Term Loan Agreement. The interest due hereunder shall be computed in the manner provided in the Term Loan Agreement.

The principal and accrued interest on this Note shall be due and payable on the dates and in the manner set forth in the Term Loan Agreement.

Notwithstanding the forgoing, the entire unpaid principal balance and any accrued interest on this Note shall be due and payable immediately upon any acceleration of the indebtedness evidenced by this Note by the Lender pursuant to the Term Loan Agreement or upon any termination of the Term Loan Agreement.

This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2(c) of the Term Loan Agreement. Borrowers may also prepay this Note, in whole or in part, in the manner provided in Section 2(d)of the Term Loan Agreement.

Upon the occurrence of an Default, the Agent and the Lenders shall have all rights and remedies set forth in Section 13 of the Term Loan Agreement and the other Loan Documents.

Time is of the essence with respect to payments due under this Note. To the fullest extent permitted by applicable law, the Borrowers and every endorser and guarantor (if any) of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Agent or any of the Lenders in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Agent or any of the Lenders of any right or remedy preclude any other right or remedy. Agent or any of the Lenders, at their option, may enforce their rights against any collateral securing this Note without enforcing their rights against the Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrowers. The Borrowers agree that, without releasing or impairing Borrowers’ liability hereunder, Agent, for the benefit of the Lenders may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note.

THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESSES SPECIFIED IN ITEM 28 OF THE ADDENDUM TO THE TERM LOAN AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

2

IN WITNESS WHEREOF, the undersigned have executed this Note to be duly executed and delivered by an officer thereunto duly authorized as of the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:  

Name:

Title:

GLOBAL CAPACITY GROUP, INC.

By:  

Name:

Title:

CENTREPATH, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES, INC.

By:  

Name:

Title:

20/20 TECHNOLOGIES I, LLC

By:  

Name:

Title:

NEXVU TECHNOLOGIES, LLC

By:  

Name:

Title:

3

FNS 2007, INC.

By:  

Name:

Title:

CAPITAL GROWTH ACQUISITION, INC.

By:  

Name:

Title:

VANCO DIRECT USA, LLC t/b/k/a GLOBAL

CAPACITY DIRECT, LLC

By:  

Name:

Title:

MAGENTA NETLOGIC LIMITED

By:  

Name:

Title:

EX-10.10

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (OR SUCCESSOR RULE THERETO) OR (III) UNLESS THE SALE, ASSIGNMENT OR TRANSFER MEETS THE REQUIREMENT OF REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

CAPITAL GROWTH SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:[_____]	Number of Shares: 12,000,000
	Date of Issuance:November ___, 2008

Capital Growth Systems, Inc., a Florida corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ACF CGS, L.L.C., a Delaware limited liability company, the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant (if required by Section 2(f)), at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined in Section 1(b) below) Twelve Million (12,000,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) below) of the Company (the "Warrant Shares") at the Warrant Exercise Price (as defined in Section 1(b) below. Notwithstanding anything to the contrary contained herein, prior to the “Amendment Date” as defined below, this Warrant shall only be exercisable into that number of Warrant Shares that are authorized and reserved for issuance hereunder. For purposes hereof, the “Amendment Date” shall be the first date after the date of this Warrant that the Company files articles of amendment to its articles of incorporation (the “Amendment”) with the Florida Secretary of State increasing its authorized Common Stock to an amount no less than 600,000,000 shares (before giving effect to any forward or reverse split that may occur on or before the date of such filing).

SECTION 1

(a)Loan and Security Agreement. This Warrant was issued pursuant to that certain Loan and Security Agreement, dated as of November__, 2008, by and among the Company, Global Capacity Group, Inc., a Texas corporation (“GCG”), Centrepath, Inc., a Delaware corporation (“Centrepath”), 20/20 Technologies, Inc., a Delaware corporation (“20/20 Inc.”), 20/20 Technologies I, LLC, a Delaware limited liability company (“20/20 LLC”), Nexvu Technologies, LLC, a Delaware limited liability company (“Nexvu”), FNS 2007, INC., a Delaware corporation (“FNS”), Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), Magenta Netlogic Limited, a United Kingdom corporation (“Magenta”), Capital Growth Acquisition, Inc., a Delaware corporation (“CG Acquisition”), and Holder (as such agreement may be amended from time to time as provided in such agreement, the "Loan Agreement").

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i)“Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which banks in New York, New York are otherwise closed for transacting business with the public.

(ii)"Common Stock" means (i) the Company's common stock, $0.0001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(iii)"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)"Expiration Date" means the date that is five (5) years after the Warrant Date (as defined in Section 12) or, if such date does not fall on a Business Day, then the next Business Day.

(v)"Option" means any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(vi)"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

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(vii)"Principal Market" means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.

(viii)"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of even date herewith, between the Company and Holder, as such agreement may be amended, restated or modified and in effect from time to time.

(ix)"Securities Act" means the Securities Act of 1933, as amended.

(x)"Trading Day" means any day on which the Common Stock is traded on the Principal Market; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade, or actually trades, on such exchange or market for less than 4.5 hours.

(xi)"Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xii)"Warrant Exercise Price" shall be equal to, with respect to any Warrant Share, $0.24, subject to adjustment as hereinafter provided.

(xiii)"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) ("Bloomberg") through its "Volume at Price" functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as such over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(a). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

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SECTION 2. EXERCISE OF WARRANT

(a)Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of the Holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) if required by Section 2(f) or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10); provided, that if such Warrant Shares are to be issued in any name other than that of the registered Holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), on the second (2nd) Business Day (the "Warrant Share Delivery Date") following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and if required by Section 2(f) (or unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 10) (the "Exercise Delivery Documents"), (A) provided that the transfer agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the Holder is eligible to receive shares through DTC as they would relate to this Warrant, the Company shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) the Company shall issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. Upon the later of the date of delivery of (x) the Exercise Notice and (y) the Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 2(e), the Holder shall be deemed for all purposes to have become the Holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the "Deemed Issuance Date"), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Weighted Average Price of a security or the arithmetic calculation of the number of Warrant Shares, the Company shall promptly issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within two (2) Business Days after receipt of the Holder's Exercise Notice. If the Holder and the Company are unable to agree upon the determination of the Warrant Exercise Price, the Weighted Average Price or arithmetic calculation of the number of Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Warrant Exercise Price or the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder. The Company shall cause at its sole and exclusive expense the investment banking firm to perform the determinations or calculations and notify the Company and the Holder of the results no later than three (3) Business Days after the time it receives the disputed determinations or calculations. Such investment banking firm's determination or calculation, as the case may be, shall be deemed conclusive absent error.

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(b)If this Warrant is submitted for exercise, as may be required by Section 2(f), and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of this Warrant (the "Warrant Delivery Date") and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised (together with, in the case of a Cashless Exercise, the number of Warrant Shares surrendered in lieu of payment of the Exercise Price).

(c)No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within three (3) Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) hereof, if any, then the Company shall, in addition to any other remedies under this Warrant or the Loan Agreement or otherwise available to the Holder, pay as additional damages in cash to the Holder on each day after such third (3rd) Business Day that such shares of Common Stock are not issued and delivered to the Holder, in the case of clause (x) above, or such third (3rd) Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) 0.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date; provided that in no event shall: (i) cash damages accrue pursuant to this Section 2(d) during the period, if any, in which any Warrant Shares are the subject of a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(a); or (ii) cash damages accrue in the aggregate to an amount exceeding twelve percent (12%) of the product of the number of shares of Common Stock subject to this Warrant and the original Exercise Price for the Common Stock subject to this Warrant. Alternatively, subject to the dispute resolution provisions of Section 2(a), at the election of the Holder made in the Holder's sole discretion, the Company shall pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Loan Agreement), 110% of the amount that (A) the Holder's total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by the Holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (B) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise.

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(e)Notwithstanding anything contained herein to the contrary, the Holder may at any time prior to the Expiration Date, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

  B

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being exercised;

B = the arithmetic average of the Weighted Average Price of the Common Stock on each of the five (5) consecutive Trading Days immediately preceding the date of the delivery of the Exercise Notice; and

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(f)Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof. Each Warrant shall bear the following legend:

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ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

SECTION 3. COVENANTS AS TO COMMON STOCK

The Company hereby covenants and agrees as follows:

(a)This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including pursuant to a Cashless Exercise, as applicable), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 150% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant; provided, however, that the Company shall effect the Amendment no later than 180 days following the date of this Warrant. Should the Company fail to effect the Amendment within such time period, then the number of shares to be purchased under this warrant shall be increased by 2% for each 30 day period thereafter that the Company fails to effect the Amendment.

(d)If, and so long as, any shares of Common Stock shall be listed on any securities exchange or quoted on the OTC Bulletin Board or other quotation system or trading market, the shares of Common Stock issuable upon exercise of this Warrant shall be so listed or quoted; and the Company shall so list (or cause to be quoted) on such exchange, quotation system or market, and shall maintain such listing or quotation of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such securities exchange, or quotation system or market.

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(e)The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.0001 per share, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets.

SECTION 4. TAXES

The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

SECTION 5. WARRANT HOLDER NOT DEEMED A SHAREHOLDER

No Holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial holder of shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

SECTION 6. REPRESENTATIONS OF HOLDER

The Holder, by the acceptance hereof, represents that it is acquiring this Warrant, and upon exercise hereof (other than pursuant to a Cashless Exercise) will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder further represents, by acceptance hereof, that, as of this date, the Holder is an "accredited investor" as such term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.

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SECTION 7. OWNERSHIP AND TRANSFER

(a)The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement to the extent provided therein and the initial Holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement.

SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Warrant Date (as defined in Section 12), the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company), for a consideration per share less than a price (the "Applicable Price") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share; provided however, no such adjustment shall be made to the Warrant Exercise Price as a result of any "Exempted Issuance." For purposes hereof, "Exempted Issuance" means any issuance or deemed issuance of shares of Common Stock: (i) pursuant to an Approved Stock Plan, provided that the number of such shares issued or deemed to be issued in any calendar year does not exceed the greater of one percent (1.0%) of the number of outstanding shares of Common Stock at the end of the immediately preceding calendar year or the number of shares currently authorized for issuance pursuant to the Company’s 2008 Long Term Incentive Plan; or (ii) that is deemed to constitute an “Exempt Issuance” as that term is defined in the form of Securities Purchase Agreement dated on or about the date of this Warrant calling for the purchase of up to $10,500,000 of convertible debentures with warrants (the proceeds of which are to be used in part for the purchase of the limited liability company interests (“LLC Interests”) of Vanco Direct USA, LLC (the “Sub Debt Purchase Agreement”); (iii) the issuance of the securities subject to the Sub Debt Purchase Agreement or the issuance of securities with respect to a convertible note for up to $4,000,000 that may be issued to the seller of the LLC Interests to the Company; or (iv) that is pursuant to an “Excluded Transaction.” For purposes hereof, the term "Approved Stock Plan" means any employee benefit plan that has been approved by the Board of Directors and stockholders of the Company, pursuant to which shares of Common Stock may be issued solely to consultants, employees, officers and/or directors for services provided to the Company or any of its Subsidiaries (and not, for the avoidance of doubt, for equity capital raising purposes). For purposes hereof, an "Excluded Transaction" shall be any issuance of equity securities of the Company (or warrants, options, convertible rights or other rights to acquire equity securities): (A) to a provider of goods or services to the Company, in connection with an acquisition of a business or assets; or (B) in connection with the outstanding rights of any holder of an option, warrant or convertible security that is issued and outstanding on or before the date of this Warrant; provided that such option, warrant or convertible security is not amended or adjusted after the date of this Warrant to increase the number of securities into which it is convertible, exchangeable or exercisable or to decrease the exercise, exchange or conversion price. Upon each such adjustment of the Warrant Exercise Price pursuant to the immediately preceding sentence, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

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(b)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price other than pursuant to an Excluded Transaction or Exempted Issuance), the following shall be applicable:

(i)Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of any such Option or upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities.

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(ii)Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exchange or exercise of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)Change in Option Price or Rate of Conversion. If the purchase, exchange or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Options or Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price that would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase, exchange or exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed after the date of issuance of this Warrant in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b) above (which, for the avoidance of doubt, the Company expressly agrees shall mean, at least as of any date after the Warrant Date, for all purposes of this Section 8, including for purposes of determining whether the Company has issued or sold, or shall be deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Applicable Price), the following shall be applicable:

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(i)Calculation of Consideration Received. In case any Options are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction or series of related transactions, (A) the Options will be deemed to have been issued for a consideration equal to the greatest of (I) $0.01, (II) the specific aggregate consideration, if any, allocated to such Options, and (III) the Black-Scholes Value (as defined below) of such Options (the greatest of (I), (II) and (III), the "Option Consideration") and, for purposes of applying the provisions of this Section 8, the Option Consideration shall be allocated pro rata among all the shares of Common Stock issuable upon exercise of such Options to determine the consideration per each such share of Common Stock and (B) the other securities will be deemed to have been issued for an aggregate consideration equal to the aggregate consideration received by the Company for the Options and other securities (determined as provided below with respect to each share of Common Stock represented thereby), less the Option Consideration. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the Weighted Average Price of such securities on the date of receipt of such securities. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent error, and the fees and expenses of such appraiser shall be borne by the Company.

(ii)Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

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(iii)Black-Scholes Value. The "Black-Scholes Value" of any Options shall mean the sum of the amounts resulting from applying the Black-Scholes pricing model to each such Option, which calculation is made with the following inputs: (i) the "option striking price" being equal to the lowest exercise price possible under the terms of such Option on the date of the issuance of such Option (the "Valuation Date"), (ii) the "interest rate" being equal to the Federal Reserve US H.15 T Note Treasury Constant Maturity 1 Year rate on the Valuation Date (as reported by Bloomberg through its "ALLX H15T" function (accessed by typing "ALLX H15T" [GO] on a Bloomberg terminal, and inserting the date of the Valuation Date and then looking at the row entitled "Treas Const Mat 1 Year" under the column entitled "Previous Value")), or if such rate is not available then such other similar rate as mutually agreed to by the Company and the Holder, (iii) the "time until option expiration" being the time from the Valuation Date until the expiration date of such Option, (iv) the "current stock price" being equal to the Weighted Average Price of the Common Stock on the Valuation Date, (v) the "volatility" being the 100-day historical volatility of the Common Stock as of the Valuation Date (as reported by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to zero. Within three (3) Business Days after the Valuation Date, each of the Company and the Holder shall deliver to the other a written calculation of its determination of the Black-Scholes Value of the Options. If the Holder and the Company are unable to agree upon the calculation of the Black-Scholes Value of the Options within five (5) Business Days of the Valuation Date, then the Company shall submit via facsimile the disputed calculation to an investment banking firm (jointly selected by the Company and the Holder) within seven (7) Business Days of the Valuation Date. The Company shall cause such investment banking firm to perform the calculations and notify the Company and the Holder of the results no later than ten (10) Business Days after the Valuation Date. Such investment banking firm's calculation of the Black-Scholes Value of the Options shall be deemed conclusive absent error. The Company shall bear the fees and expenses of such investment banking firm for providing such calculation.

(d)Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case:

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(i)the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the Holder shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the amount of the assets that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(f)Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)Notices.

(i)As soon as reasonably practicable, but in no event later than two (2) Business Days, upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided, however, that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

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(ii)The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(iii)The Company will also give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE

(a)In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for such Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder, without regard to any limitation on exercise thereof) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of this Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

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SECTION 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT

If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

SECTION 11. NOTICE

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company: Capital Growth Systems, Inc.

500 W. Madison - Suite 2060

Chicago, Illinois 60661

Attention: Chief Executive Officer

Facsimile: (312) 673-2422

with a copy to: Shefsky & Froelich Ltd.

111 East Wacker Drive, Suite 2800

Chicago, Illinois 60601

Attention: Mitchell D. Goldsmith

Facsimile: (312) 527-3194

If to Holder: ACF CGS, L.L.C.

c/o Archer Capital Management

570 Lexington Avenue - 40^th Floor

NY, NY 10022

Attention: Gary Katz

Facsimile: 212-319-1033

With a copy to: Jeffrey H. Wolf, Esq.

Greenberg Traurig, LLP

One International Place

Boston, MA 02110

Facsimile No.: (310) 310-6001

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice to the other party at least five (5) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

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SECTION 12. DATE

The date of issuance of this Warrant is the date first set forth above (the "Warrant Date"). This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

SECTION 13. AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW

The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the substantive laws (other than conflict of law provisions and principles, but including Section 5-1401 and Section 5-1402 of the General Obligations Law) of the State of New York.

SECTION 15. RULES OF CONSTRUCTION

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) each accounting term not otherwise defined in this Warrant has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word "including" in this Warrant shall be by way of example rather than limitation.

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SECTION 16. NO EFFECT UPON LENDING RELATIONSHIP

Anything herein contained to the contrary notwithstanding, nothing contained in this Warrant shall affect, limit or impair the rights and remedies of Holder, any of its affiliates, or its successors and transferees, or any other lender in their respective capacities as lenders to the Company or any of its Subsidiaries (each, a "Subject Person") pursuant to any agreement under which the Company or any of its subsidiaries has borrowed money. Without limiting the generality of the foregoing, no Subject Person, in exercising its rights as a lender, shall have any duty to consider (i) its status as a direct or indirect shareholder or other equityholder of the Company, (ii) the interests of the Company or any of its subsidiaries, or (iii) any duty it may have to any other direct or indirect shareholder or other equityholder of the Company, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of __________, 2008.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THIS WARRANT

CAPITAL GROWTH SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.Form of Warrant Exercise Price. The holder intends that payment of the Warrant Exercise Price shall be made as:

____________a "Cash Exercise" with respect to ___________________ Warrant

Shares; and/or

____________a "Cashless Exercise" with respect to ______________ Warrant

Shares (to the extent permitted by the terms of the Warrant).

2.Payment of Warrant Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in accordance with the terms of the Warrant in the following name and to the following address:

Issue to:

Facsimile Number:

DTC Participant Number and Name (if electronic book entry transfer):

Account Number (if electronic book entry transfer):

Date:

 Name of Registered Holder

 By:

 Name:

 Title:

A-1

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock & Transfer Company or the currently existing transfer agent if other than such entity ("Transfer Agent") to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________________, 200_ from the Company and acknowledged and agreed to by Transfer Agent.

 Capital Growth Systems, Inc.

 By:

 Name:

 Title:

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Capital Growth Systems, Inc., a Florida corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated: ____________________, 200___

 Name:

 Title:

B-1

EX-10.11

Exhibit 10.11

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November ____, 2008 between Capital Growth Systems, Inc., a Florida corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Administrator” means Vanco plc (in administration).

“Administrator Debenture” means the debenture in the form of Exhibit A-1 hereto, issuable to the administrator pursuant to the terms of the ILPA (as defined below) in the original principal amount of $3,000,000.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Archer Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and the Archer Purchasers in the form of Exhibit H-1 attached hereto

“Archer Purchasers” means the purchasers of the securities issued pursuant to the Loan and Security Agreement dated as of the date hereof by and among the Company and its Subsidiaries and ACF CGS, L.L.C. (the “Archer Loan Agreement”).

“Authorized Share Approval” means (i) the vote by the stockholders of the Company to approve an amendment to the Company’s articles or certificate of incorporation that increases the number of authorized shares of Common Stock to at least 600,000,000 shares of Common Stock (the “Amendment”) and (ii) the filing by the Company of the Amendment with the Secretary of State of the State of Florida and the acceptance of the Amendment by the Secretary of State of the State of Florida.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

“Closing Statement” means the Closing Statement in the form Annex A attached hereto.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive Common Stock.

“Company Counsel” means Shefsky & Froelich, with offices located at 111 E. Wacker Drive, Suite 2800, Chicago, Illinois 60601.

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures” means the Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

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“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).

“Effective Date” means the earlier of (a) the effective date of a Registration Statement and (b) the date that all of Underlying Shares issuable pursuant to the Transaction Documents may be sold or are eligible for sale under Rule 144, without volume or manner-of-sale restrictions.

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder (including but not limited to any issuance of Common Stock with respect to the redemption of the Debentures and the debentures issued pursuant to the March Purchase Agreement or payment of any liquidated damages with respect to the Debentures, the Warrants and this Agreement and the debentures and warrants issued pursuant to the March Purchase Agreement) and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) for purposes of Section 4.12 only, an issuance of Common Stock or Common Stock Equivalents, without registration rights, for cash consideration, to the global carrier referenced in the Company’s press release dated February 20, 2008, provided, however, any such issuance of Common Stock Equivalents shall be expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (e) for purposes of Sections 4.12 and 4.13 only, securities (including shares of Common Stock, warrants and Common Stock Equivalents) issued in connection with the Archer Loan Agreement the terms of which are described in the Disclosure Schedules hereto and the Administrator Debenture.

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“FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“March Purchase Agreement” means the Securities Purchase Agreement, dated March 11, 2008, by and among the Company and each of the purchasers signatories thereto for the issuance of debentures and warrants.

“March Purchasers” means the purchasers of the securities issued pursuant to the March Purchase Agreement and any successors in interest to any of the debentures and warrants issued pursuant to the March Purchase Agreement (by way of assignment or cancellation and reissuance of the same).

“March Purchasers Intercreditor Agreement” means the intercreditor agreement, dated as of the date hereof, duly executed by the Company, each of the Purchasers, and each of the March Purchasers in the form of Exhibit H-2 attached hereto

“March Registration Rights Agreement” means the Registration Rights Agreement, dated March 11, 2008, by and among the Company and each of the March Purchasers.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

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“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.65.

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

“Registration Statement” means a registration statement filed pursuant to Section 4.18, registering the resale, by the Purchasers, of all of the Underlying Shares, or any portion thereof.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit E attached hereto.

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“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees, the Intercreditor Agreement, and any other documents and filing required thereunder in order to grant the Purchasers a security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds or, with respect to (i) Aequitas Catalyst Fund, LLC - Series C (“Aequitas”), through the conversion of its bridge note dated September 29, 2008, in the original principal amount of $500,000 (the “Aequitas Note”) to a debenture and warrant hereunder and (ii) Capstone Investments (“Capstone”), through the irrevocable waiver of its right to all or a portion of its cash fee of 7% of the cash proceeds hereunder and under the Archer Loan Agreement.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F attached hereto.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

6

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Security Agreement, the Subsidiary Guarantee, the Archer Intercreditor Agreement, the March Purchasers Intercreditor Agreement, the Voting Agreement, the Consent, Waiver and Amendment Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current transfer agent of the Company with a mailing address of 17 Battery Place, New York, New York 10004 and a facsimile number of 212-509-5150, and any successor transfer agent of the Company.

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures.

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

“Voting Agreement” means the written agreement, in the form of Exhibit G attached hereto, of all of the officers, directors, and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favor of the Authorized Share Approval, amounting to, in the aggregate, at least 50.1% of the issued and outstanding Common Stock.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years from the date of the Authorized Share Approval, in the form of Exhibit C attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to $17,325,000, in the aggregate, in principal amount of the Debentures (with an aggregate Subscription Amount of up to $10,500,000). Each Purchaser shall deliver to the Company via wire transfer or a certified check, immediately available funds equal to its cash Subscription Amount (and, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement) and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such other location as the parties shall mutually agree.

2.2Deliveries.

(a)On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii)a legal opinion of Company Counsel, in substantially the form of Exhibit D attached hereto;

(iii)a Debenture with a principal amount equal to such Purchaser’s Subscription Amount multiplied by 1.65, registered in the name of such Purchaser;

(iv)the Voting Agreements, duly executed by all officers, directors and 10% stockholders of the Company;

(v)a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 75% of such Purchaser’s Subscription Amount divided by $0.24, with an exercise price equal to $0.24, subject to adjustment therein;

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(vi)the Security Agreement, duly executed by the Company, VDUL (as defined below) and each Subsidiary, along with all of the Security Documents (including, without limitation, documents and agreements evidencing the Purchasers’ security interest in the assets of the Company’s Subsidiary that is organized in the UK), including the Subsidiary Guarantee, duly executed by the parties thereto;

(vii)the Archer Intercreditor Agreement, duly executed by the Company and the Archer Purchasers; and

(viii)the March Purchasers Intercreditor Agreement, duly executed by the Company and each of the March Purchasers.

(b)On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s cash Subscription Amount by wire transfer to the account as specified in writing by the Company (or, with respect to (x) Aequitas, evidence of the cancellation of the Aequitas Note and (y) Capstone, evidence of their irrevocable waiver of their right to a cash fee hereunder and under the Archer Loan Agreement);

(iii)the Security Agreement duly executed by such Purchaser;

(iv)the Archer Intercreditor Agreement duly executed by such Purchaser; and

(v)the March Purchasers Intercreditor Agreement duly executed by such Purchaser.

2.3Closing Conditions.

(a)The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

(iii)the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

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(b)The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii)the delivery of a lock-up agreement, in the form attached hereto as Exhibit J, duly executed by each of the Administrator and Capstone, the Company and the Transfer Agent;

(iv)all existing debtholders of the Company and its Subsidiaries, with the exception of the Excepted Debtholders, as that term is defined herein (each, an “Existing Debtholder” and together, the “Existing Debtholders”), shall each have executed and delivered to the Purchasers an agreement whereby each Existing Debtholder shall agree, that all amounts owed to it shall not mature or require payments of any nature prior to the repayment of all amounts due under the Debentures, and whereby such indebtedness is made expressly subordinate in right of payment to the indebtedness evidenced by the Debentures, as reflected in a written agreement reasonably acceptable to, and approved by, the Purchasers. The term the Excepted Debtholders includes the March Purchasers, the Archer Purchasers and such other debtholders described on Schedule 2.3(b)(iii)attached hereto (together, the “Excepted Debtholders”);

(v)the delivery of a consent, waiver and amendment agreement, in the form attached hereto as Exhibit I duly executed by each March Purchaser (the “Consent, Waiver and Amendment Agreement”);

(vi)the Interest and Loan Purchase Agreement (“ILPA”) among Capital Growth Acquisition, Inc. (“Acquisition”), Vanco Direct USA, LLC (“VDUL”) and the Administrators for the estate of Vanco, plc (“Administrators”) shall have been duly executed on terms and conditions described in the Disclosure Schedules hereto, and the transactions consummated thereunder shall have been consummated subject only to the conveyance of the VDUL limited liability company interest, which shall be subject only to certain post-closing state regulatory filings described on Schedule 3.1(m)(A) hereto or the passage of time as further described on the Disclosure Schedules hereto;

(vii)the closing of the Archer Loan Agreement, with gross proceeds of not less than $8,500,000 to the Company and its Affiliates, shall have been consummated prior to or contemporaneous with the Closing hereunder on terms and conditions described in the Disclosure Schedules (provided, the aggregate principal amount of the Senior Debt shall not exceed $10,500,000), and the Company shall have delivered evidence thereof to the Purchasers;

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(viii)there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

(ix)from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

(a)Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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(c)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(d)No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents and the consummation by it to which it is a party of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) the filings set forth in Schedule 3.1(e) required under the ILPA to obtain necessary FCC and state commerce commission approvals to the change in control of VDUL (collectively, the “Required Approvals”).

(f)Issuance of the Securities. The Securities (other than the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Subject only to the Authorized Share Approval, the Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

(g)Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act or as reflected on Schedule 3.1(g). Except as set forth on Schedule 3.1(g)(i), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or on Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g)(ii), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth on Schedule 3.1(g)(iii), no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as described on Schedule 3.1(h), the Company has never been an issuer subject to Rule 144(i) under the Securities Act. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as otherwise disclosed in subsequently filed SEC Reports filed prior to the date hereof, such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Material Changes. Other than as set forth on Schedule 3.1(i), since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice or in connection with the transaction contemplated by this Agreement and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement and the other transactions contemplated by the Transaction Documents or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

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(j)Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as set forth on Schedule 3.1(j). There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(k)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. Except as disclosed on Schedule 3.1(k), the Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(l)Compliance. Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(m)Regulatory Permits. Except as disclosed on Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n)Title to Assets. Except for the liens set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

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(o)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(p)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in the amount of $10.0 million. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q)Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

(r)Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on Schedule 3.1(r), the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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(s)Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, except as set forth on Schedule 3.1(s). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(t)Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

(v)Registration Rights. Other than the persons specified on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

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(w)Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(x)Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(y)Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Archer Loan Agreement and the ILPA, the material terms of which are set forth on Schedule 3.1(y) (all of which shall be publicly disclosed contemporaneous with the disclosure of this Agreement as required by Section 4.6), the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

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(z)No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(aa)Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the projected cash flow of the Company from its future operations, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

(bb)Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

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(cc)No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(dd)Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ee)Accountants. The Company’s present accounting firm is Plante Moran. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act. The Company has advised that it is in the process of retaining a new accounting firm. The Company warrants that it shall retain a new accounting firm duly registered as a public accounting firm as required by the Exchange Act and that such new firm shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending December 31, 2008.

(ff)Seniority. Except for the Senior Debt, as of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby), or as otherwise set forth on Schedule 3.1(ff).

(gg)No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and except as noted in Schedule 3.1(gg), the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

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(hh)Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(ii)Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

(jj)Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

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3.2Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a)Organization; Authority. Such Purchaser if an entity, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which a Purchaser is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Notwithstanding the foregoing, Midsummer Investment Ltd. (“Midsummer”) has been approached by an institutional accredited investor that was introduced to Midsummer by the placement agent for this transaction (the “Potential Purchaser”) about purchasing a portion of its Securities purchased hereunder after the Closing in a private transaction.  Midsummer represents there are no present understandings or agreements to transfer any of its Securities to such Potential Purchaser, however, any such transfer otherwise in accordance with the provisions of Section 4.1(a) hereof shall in no way be deemed a breach of Midsummer’s representations and warranties hereunder or under any other Transaction Document.

(c)Purchaser Status. At the time such Purchaser was offered the Securities, such Purchaser was, and as of the date hereof such Purchaser is, and on each date on which such Purchaser exercises any Warrants or converts any Debentures such Purchaser will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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(d)Experience of Such Purchaser. Such Purchaser, either alone or together with his or its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

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(a)The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities , including, if the Securities are subject to registration pursuant to Section 4.18, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

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(c)Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including a Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if promptly after the Effective Date required by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144, without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)(i)In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the second Trading Day following the Legend Removal Date (the “Legend Removal Deadline”) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

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(ii)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.1(d)(i) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.1(d)(i) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Legend Removal Deadline, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

(e)Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

4.2Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information; Public Information.

(a)If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60^th calendar day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. Upon a cashless exercise of the Warrant, the holding period for purpose of Rule 144 shall tack back to the original date of issuance of such Warrants.

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(b)At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(c)Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Purchasers are prohibited from receiving, cash payments of liquidated damages pursuant to Section 4.3(b) above, at the option of each Purchaser on written notice to the Company, such amounts otherwise payable in cash pursuant to Section 4.3(b) shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the least of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Public Information Failure, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued, and (z) the then applicable Conversion Price.

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4.4Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5Conversion and Exercise Procedures. Each of the Purchasers agrees the he/she/it will not convert their Debenture or exercise their Warrant until such time as the Authorized Share Approval has occurred. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debenturesset forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.6Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with (i) any registration statement contemplated by Section 4.18 of this Agreement and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.7Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

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4.8Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

4.9Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.

4.10Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

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4.11Reservation and Listing of Securities.

(a)Following the Authorized Share Approval, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents at least equal to the Required Minimum as of such date.

(b)If, on any date after the date of the Authorized Share Approval, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

(c)The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing and (iv) maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

(d)In addition, the Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date following the date hereof, and in any event within 75 calendar days following the Closing Date, for the purpose of obtaining the Authorized Share Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. In addition, the Company agrees to use its best efforts to promptly respond to any comments the Commission may have with respect to any preliminary proxy statement. If the Company does not obtain the Authorized Share Approval at the first meeting, the Company shall call a meeting every 30 days thereafter to seek Authorized Share Approval until the earlier of the date the Authorized Share Approval is obtained or the Debentures and Warrants are no longer outstanding.

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4.12Participation in Future Financing.

(a)Other than the Senior Debt, from the date hereof until the date that the Debentures are no longer outstanding, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a combination of units hereof) (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

(b)At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

(c)Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5^th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

(d)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Participation Maximum, Company may effect the remaining portion of the Participation Maximum of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

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(e)If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

(f)The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 Trading Days after the date of the initial Subsequent Financing Notice.

(g)Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

4.13Subsequent Equity Sales.

(a)From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, a Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

(b)From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

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(c)Unless and until the Authorized Share Approval is obtained, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents. So long as the Debentures or Warrants are outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $0.24 (subject to adjustment for forward and reverse stock splits, stock dividends and combinations and similar transactions affecting the Common Stock after the Closing Date). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(d)Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

4.14Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.15Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will execute any Short Sales during the period commencing with the Discussion Time and ending at such time the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6; provided, however, each Purchaser agrees, severally and not jointly with any other Purchasers, that they will not enter into any Net Short Sales (as hereinafter defined) from the period commencing on the Closing Date and ending on the date that is the earlier of (x) the 6-month anniversary of the Closing Date or (y) the date that such Purchaser no longer holds any Debentures.  For purposes of this Section 4.15, a “Net Short Sale” by any Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by such Purchaser.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by the Purchaser, Underlying Shares that have not yet been converted pursuant to the Debentures and Warrant Shares that have not yet been exercised pursuant to the Warrants shall be deemed to be held long by the Purchaser, and the amount of shares of Common Stock held in a long position shall be all unconvertedUnderlying Sharesand unexercised Warrant Shares (ignoring any exercise limitations included therein) issuable to such Purchaser on such date, plus any shares of Common Stock or other Common Stock Equivalents (other than the unconverted Underlying Shares and unexercised Warrant Shares described in this sentence) otherwise then held by such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

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4.16Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

4.17Capital Changes. Until the one year anniversary of the Effective Date, other than in connection with a Permitted Reverse Stock Split (as defined below), the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of the Common Stock that is approved on or before April 15, 2009 for purposes of satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and is effective contemporaneous with, or immediately prior to, the approval of the Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market.

4.18Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then, subject to SEC Guidance (as defined in the March Registration Rights Agreement) the Company shall send a written notice of such determination to each Purchaser and, if within

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ten calendar days after the date of delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such Registration Statement all or any part of the Underlying Shares as the Purchaser requests to be registered so long as such Underlying Shares are proposed to be disposed of in the same manner as those securities set forth in the Registration Statement, subject to pro rata cutback of the Purchasers (based upon the respective amounts of their Underlying Shares that are proposed for registration) and all other security holders proposed to be included in such Registration Statement, to the extent that all of the shares proposed for registration shall not be permitted due to SEC Guidance with respect to Rule 415. The Company shall use its best efforts to cause any Registration Statement to be declared effective by the Commission as promptly as is possible following it being filed with the Commission and to remain effective until all Underlying Shares subject thereto have been sold. All fees and expenses incident to the performance of or compliance with this Section 4.18 by the Company shall be borne by the Company whether or not any Underlying Shares are sold pursuant to the Registration Statement. The Company shall indemnify and hold harmless the Purchasers, the officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them, each person who controls the Purchasers (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the officers, directors, members, shareholders, partners, agents and employees of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any prospectus included therein or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 4.18, except to the extent, but only to the extent, that such untrue statements or omissions referred to in (i) above are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser’s proposed method of distribution of Underlying Shares and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto. The rights of the Purchasers under this Section 4.18 shall survive until all Underlying Shares have been either registered under a Registration Statement or been sold pursuant to an exemption to the registration requirements of the Securities Act.

4.19Removal of Subordination Legend. Following the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), within 3 Business Days of a written request from any Purchaser, the Company hereby agrees to issue such Purchaser a replacement Debenture, without the restrictive legend referencing the Archer Intercreditor Agreement, and otherwise in the same form of such Purchaser’s Debenture.

4.20Certain Permitted Payments under the Archer Intercreditor Agreement. In connection with “Permitted Payments” (as defined in the Archer Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder,no less than ten (10) days prior to the due date of such Quarterly Redemption Amounts (as defined in the Debentures) as described in such Section, the Company agrees to deliver each Purchaser a written certification of compliance with the financial covenants under the Archer Loan Agreement for the month prior to the date such Quarterly Redemption Amount is due, and, if requested in writing by a Purchaser and subject to Section 4.8 hereunder, calculations in reasonable detail evidencing compliance with such financial covenants.

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4.21Other Agreement(s). From the date hereof until the two year anniversary of the Closing Date, neither the Company nor any Subsidiary shall issue any Common Stock or Common Stock Equivalents to Patrick Shutt, George King or Robert Pollan, or any of their respective Affiliates. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 21, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse Midsummer Capital, LLC (“Midsummer”) the non-accountable sum of $75,000 for its legal fees and expenses, $25,000 of which has been paid prior to the Closing. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

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5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

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5.10Survival. The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice.

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5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

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5.18Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FWS. FWS does not represent all of the Purchasers but only Midsummer. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

5.19Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.21Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

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5.22WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

CAPITAL GROWTH SYSTEMS, INC.	Address for Notice: Attention Chief Executive Officer 500 W. Madison St., Suite 2060 Chicago, Illinois 60661 Facsimile: 312-673-2422
By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice):
Shefsky & Froelich Ltd. 111 E. Wacker Dr., Suite 2800 Chicago, Illinois 60601 Facsimile: 312-275-7569

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO CGSY SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Principal Amount (Subscription Amount multiplied by 1.65): _____________

Warrant Shares: _________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

EX-10.12

Exhibit 10.12

EXHIBIT A

THIS SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THE ARCHER INTERCREDITOR AGREEMENTS (AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE ARCHER INTERCREDITOR AGREEMENT.

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November ___, 2008

Original Conversion Price (subject to adjustment herein): $0.24

$_______________

ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2015

THIS ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Secured Convertible Debentures of Capital Growth Systems, Inc., a Florida corporation, (the “Company”), having its principal place of business at 500 W. Madison Street, Suite 2060, Chicago, Illinois 60661, designated as its Original Issue Discount Secured Convertible Debenture due on the day immediately preceding the one year anniversary of the Original Issue Date (the “Termination Date”), provided that if the Final Closing Date, as that term is defined herein occurs before such date, this Debenture will be due on the seven year anniversary of the Original Issue Date (the “Extended Termination Date”) (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

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FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the later to occur of the Termination Date or the Extended Termination Date (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay default interest, if any, to the Holder on the then outstanding and unconverted and unredeemed principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).

“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

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“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of a Quarterly Redemption, the shares issuable upon conversion in full of the Quarterly Redemption Amount to the Holder would not violate the limitations set forth in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per Trading Day.

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“Event of Default” shall have the meaning set forth in Section 8(a).

“Final Closing Date” means the date of acquisition of ownership by Capital Growth Acquisition, Inc. of the purchased membership interests in Vanco Direct USA, LLC, a Delaware limited liability company pursuant to the terms of the ILPA.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture, including, without limitation, any accrued and unpaid default interest.

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“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

“Permitted Indebtedness” means(a)the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator Debenture issued to the Administrator, and (f) Magenta employee notes in the amount of approximately $87,000.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (d) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November __, 2008 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Quarterly Conversion Period” shall have the meaning set forth in Section 6(a) hereof.

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

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“Quarterly Redemption” means the redemption of this Debenture pursuant to Section 6(a) hereof.

“Quarterly Redemption Amount” means, as to a Quarterly Redemption, $[_____¹, plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder means $____².

“Quarterly Redemption Date” means January 1, April 1, July 1 and October 1, commencing immediately upon July 1, 2009 and terminating upon the full redemption of the Aggregate Quarterly Redemption Amount plus liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

“Quarterly Redemption Notice” shall have the meaning set forth in Section 6(a) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Senior Debt” shall have the meaning set forth in the Archer Intercreditor Agreement.

“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the New York Stock Exchange is open for business.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

¹ A*B-A/23, where A = the initial Subscription Amount and B = 1.65.

¹ A*B-A

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Section 2.Interest and Prepayment. The Company acknowledges and agrees that this Debenture was issued at an original issue discount. Other than default interest, no interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. At any time after the Authorized Share Approval until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 2 Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

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b)Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.24, subject to adjustment herein (the “Conversion Price”).

c)[Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.] [SECTION 4(c) TO BE REPLACED BY “[RESERVED]” WITH RESPECT TO AEQUITAS AND DAVID L.]]

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d)Mechanics of Conversion.

i.Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

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ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture.

iii.Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

iv.Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such fifth (5^rd) Trading Day until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date of the applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

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vi.Reservation of Shares Issuable Upon Conversion. After the Authorized Share Approval, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of redemption amounts on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of redemption amounts hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

vii.Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

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Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of a redemption amount on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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c)Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

f)Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)Notice to the Holder.

i.Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

Section 6.Quarterly Redemption.

a)Quarterly Redemption. On each Quarterly Redemption Date, the Company shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be paid in cash; provided, however, as to any Quarterly Redemption and upon 30 Trading Days’ prior written irrevocable notice (the “Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Quarterly Redemption Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Quarterly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 10 Trading Day period) (the price calculated during the 10 Trading Day period immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly Conversion Period”); provided, further, that the Company may not pay the Quarterly Redemption Amount in Conversion Shares unless (y) from the date the Holder receives the duly delivered Quarterly Redemption Notice through and until the date such Quarterly Redemption is paid in full, the Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior to such Quarterly Conversion Period (but not more than 5 Trading Days prior to the commencement of the Quarterly Conversion Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Quarterly Redemption Amount equal to the quotient of (x) the applicable Quarterly Redemption Amount divided by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 10 VWAPs during the period ending on the 3^rd Trading Day immediately prior to the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion Shares”).

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The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Quarterly Redemption at any time prior to the date that the Quarterly Redemption Amount, plus liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Holder shall have the right to designate how any conversions effected during the applicable Quarterly Conversion Period until the date the Quarterly Redemption Amount is paid in full shall be applied (i.e., against the principal amount of this Debenture scheduled to be redeemed on such Quarterly Redemption Date, against future Quarterly Redemption Amounts or against the principal amount of this Debenture then outstanding that is not subject to a Quarterly Redemption); provided, if no such written designation is made in the applicable Notice of Conversion, the Company shall request that the Holder provide such written designation prior to the applicable Quarterly Redemption Date; provided, further, that in the event no such written designation is ever received from the Holder prior to such applicable Quarterly Redemption Date, any such conversion shall be applied against the principal amount of this Debenture then outstanding. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full. The Company’s determination to pay a Quarterly Redemption in cash, shares of Common Stock or a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice to the Holder of its election to pay the Quarterly Redemption Amount in shares of Common Stock, and, if a Registration Statement is then effective, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election. If at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is permitted to make cash payments of a Quarterly Redemption Amount, such permissible cash payments pursuant to this Section shall be made ratably to all of the holders of the then outstanding Debentures and all of the holders of the then outstanding debentures issued pursuant to the March Purchase Agreement based on their (or their predecessor’s) initial purchases of debentures pursuant to the Purchase Agreement and the March Purchase Agreement, respectively, and notwithstanding anything herein to the contrary, prior to the Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer Intercreditor Agreement that is due on January 1, 2010, such Quartlerly Redemption payment shall be due and paid on the same date the Company pays the Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and (y) with respect to any Quarterly Redemption Amount payable in cash as permitted pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such Quartlerly Redemption payment shall be due and paid on each January 30, April 30, July 30 and October 30 (instead of January 1, April 1, July 1 and October 1, respectively). Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of a Quarterly Redemption Amount pursuant to this Section, the Company shall be required to elect to make such payment in shares of Common Stock in accordance with the terms hereof. If the Company does not meet the Equity Conditions in connection with such Quarterly Redemption Amount described in the preceding sentence, at the option of the Holder upon written notice to the Company, the Holder shall either waive such Equity Conditions or such amounts otherwise payable in cash shall continue to remain outstanding. For the avoidance of doubt, in the event that the Holder does not elect to take Common Stock if the Equity Conditions are not met as to a particular Quarterly Redemption Date as described in the preceding sentence, then the Quarterly Redemption called for with respect to such Quarterly Redemption Date shall be due on maturity of this Debenture and failure to pay the same on the applicable Quartlery Redemption Date shall not constitute an Event of Default hereunder.

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b)Redemption Procedure. The payment of a Quarterly Redemption shall be payable on the Quarterly Redemption Date. If any portion of the payment pursuant to a Quarterly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Quarterly Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Quarterly Redemption, abinitio, and, the Company shall have no further right to exercise such Quarterly Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

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Section 7.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

a)other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e)other than the Senior Debt, repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exists or occurs;

f)pay cash dividends or distributions on any equity securities of the Company;

g)enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h)enter into any agreement with respect to any of the foregoing.

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Section 8.Events of Default.

a)“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.any default in the payment of (A) the principal amount of any Debenture or (B) default interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default interest or other default under clause (B) above, is not cured within 5 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

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vii.the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.the Company does not meet the current public information requirements under Rule 144 in respect of the Underlying Shares;

x.the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

xi.any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

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b)Remedies Upon Event of Default. Subject to the Archer Intercreditor Agreement, if any Event of Default occurs, the outstanding principal amount of this Debenture, plus liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest on this Debenture shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Accrued and unpaid default interest shall be paid by the Company in cash in arrears on the first day of each calendar month. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

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Section 9.Miscellaneous.

a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and default interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks paripassu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

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d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing.

f)Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any default interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or default interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

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g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

i)Assumption.  Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

j)Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of November___, 2008 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).

k)Amendments. This Debenture may be modified or amended or the provisions hereof waived with the prior written consent of the Company and Holders holding Debentures at least equal to 67% of the aggregate principal amount then outstanding under all Debentures.

*********************

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[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.
By:
	Name:
	Title
Facsimile No. for delivery of Notices: _______________

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Original Issue Discount Secured Convertible Debenture due November ___, 2015 of Capital Growth Systems, Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Manner in which Conversion is to be Applied to Subsequent Quarterly Redemption Amounts and/or Principal Amount of Debenture:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:  

Account No:  

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Schedule 1

CONVERSION SCHEDULE

The Original Issue Discount Secured Convertible Debenture due on November ___, 2015 in the original principal amount of $____________ is issued by Capital Growth Systems, Inc., a Florida corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

  Date of Conversion (or for first entry, Original Issue Date)   Amount of Conversion   Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)   Company Attest

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EX-10.13 14 v132473_ex10-13.htm

Exhibit 10.13

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Authorized Share Approvaldate (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the date the Authorized Share Approval is received and effective (the “Termination Date”) but not thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a Florida corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the date the Authorized Share Approval has been received and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

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b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise. If at any time after the earlier of (i) the six month anniversary of the date of the Purchase Agreement and (ii) the completion of the then-applicable holding period required by Rule 144, or any successor provision then in effect, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant until the Authorized Share Approval Date.The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. [This Section 2(d) to be replaced in Aequitas Warrant with “[RESERVED]”]

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e)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the seventh Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

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c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

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Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants that after the Authorized Share Approval is received, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders holding Warrants at least equal to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

20

16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

22

(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

23

(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

24

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

26

[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

S1-1

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

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(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

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3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

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4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

*************************

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[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

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EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

A-1

(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

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EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.13

Exhibit 10.13

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

CAPITAL GROWTH SYSTEMS, INC.

Warrant Shares: _______ Issuance Date: November ___, 2008

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Authorized Share Approvaldate (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the date the Authorized Share Approval is received and effective (the “Termination Date”) but not thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a Florida corporation (the “Company”), up to ______ shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated November ___, 2008, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the date the Authorized Share Approval has been received and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within 3 Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

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b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise. If at any time after the earlier of (i) the six month anniversary of the date of the Purchase Agreement and (ii) the completion of the then-applicable holding period required by Rule 144, or any successor provision then in effect, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant until the Authorized Share Approval Date.The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report, as the case may be, (B) a more recent public announcement by the Company or (C) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase or decrease will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. [This Section 2(d) to be replaced in Aequitas Warrant with “[RESERVED]”]

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e)Mechanics of Exercise.

i.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the seventh Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered. Notwithstanding anything to the contrary contained herein, if at any time prior to the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the Company is prohibited from paying, and the Holder is prohibited from receiving, cash payments of liquidated damages pursuant to this Section, at the option of the Holder upon written notice to the Company, such amounts otherwise payable in cash pursuant to this Section shall either accrue, or be payable in the form of shares of Common Stock. The price at which shares of Common Stock issuable in lieu of the cash payment of liquidated damages hereunder shall be equal to the lesser of (x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5 consecutive VWAPs immediately prior to the date such shares are actually issued or (z) the then applicable Conversion Price.

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ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.

iv.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

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c) Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then, the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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e)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of such transaction and the Termination Date.

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f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g)Notice to Holder.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issuance Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

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Section 5.Miscellaneous.

a)No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants that after the Authorized Share Approval is received, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders holding Warrants at least equal to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________

Name:

Title:

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NOTICE OF EXERCISE

TO:CAPITAL GROWTH SYSTEMS, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:   _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.14 15 v132473_ex10-14.htm

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

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16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

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(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

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(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15 16 v132473_ex10-15.htm

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

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2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

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(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

S1-8

(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

S1-9

IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

S1-10

ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16 17 v132473_ex10-16.htm

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17 18 v132473_ex10-17.htm

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

2

3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

3

4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

*************************

4

[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

5

EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

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(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

A-8

(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

A-9

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

A-10

EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

A-A-1

EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

A-B-1

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.14

Exhibit 10.14

EXHIBIT E

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November ___, 2008 (this “Agreement”), is among Capital Growth Systems, Inc., a Florida corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s Original Issue Discount Secured Convertible Debentures due seven years following their initial issuance, in the original aggregate principal amount of up to $17,325,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

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(i) All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

(v)All commercial tort claims;

(vi)All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)All investment property;

(viii)All supporting obligations; and

(ix)All files, records, books of account, business papers, and computer programs; and

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(x)the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash. Notwithstanding anything to the contrary contained herein, upon the sale or licensing by Nexvu Technologies, LLC (“Nexvu”), of any of its, assets, personal, real or intellectual property on terms and conditions unanimously approved by the Board of Directors in good faith, the Secured Parties agree to release their Lien on the Collateral owned directly by Nexvu on the date hereof from its security interest herein to the extent subject to such sale or licensing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

Notwithstanding the foregoing, the term Collateral shall not include any equipment owned by any of the Debtors or Vanco Direct USA, LLC, a Delaware limited liability company (“Vanco”), which is used in connection with the delivery of telecommunications services as part of the business operations of the Debtors and Vanco to the extent the grant of security interest in such equipment would be prohibited under applicable state regulations, and to the extent such equipment is excluded from the definition of “collateral” and the security interest granted to the Archer Purchasers under the Archer Loan Agreement.

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)“Majority in Interest” means, at any time of determination, a 67% or more majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

(d)“Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

(h) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

(i)“UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a“Security Interest” and, collectively, the “Security Interests”).

3.Delivery of Certain Collateral. Immediately upon the Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement), each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

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(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. No Debtor owns any real property. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(c) Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement or as permitted in connection with any permitted purchase money security interests or capital leases that are permitted under the Debentures).

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

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(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), with respect to patents and trademarks filed with the US Patent and Trademark Office with respect to federally registered patents and trademarks and pending applications for federal registration of patents and trademarks, the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

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(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

(k) Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

(l) Except as expressly permitted in Section 1 with respect to licenses and transfers by Nexvu, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

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(m)Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(n)Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, and except as set forth below, that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Notwithstanding anything to the contrary contained herein, so long as no Event of Default (as defined in the Debentures) exists, Company may apply payments in excess of $100,000 to repair or replace switching or routing equipment, for the purpose of restoring or establishing new customary circuits to address the casualty loss related to such equipment. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

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(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(w)Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

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(x) No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(y)Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

(z) (i) The actual name of each Debtor is the name set forth inSchedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.

(aa)At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

(cc)Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(dd)If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

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(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

(gg)If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(hh)Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ii)Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

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(kk)Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

(ll) In the event that, upon an occurrence of an Event of Default, subject to the rights of the Archer Purchasers under the Archer Loan Agreement, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(mm)Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(nn)Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(oo)Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(pp)Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.Effect of Pledge on Certain Rights.If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6. Defaults. The following events shall be “Events of Default”:

(a) The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five Business Days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

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7.Duty To Hold In Trust.

(a)Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

(b)If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.Rights and Remedies Upon Default.

(a)Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

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(iii) The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

(iv)The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

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(c)For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 16% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

10.Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

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11.Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

12.Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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13.Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

15. Power of Attorney; Further Assurances.

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

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(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

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16.Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

17.Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

18.Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Midsummer may not be removed as Agent unless Midsummer shall then hold less than $250,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $500,000 in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

19.Miscellaneous.

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

22

(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

(k)Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

(l)Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

23

(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

[SIGNATURE PAGES FOLLOW]

24

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

CAPITAL GROWTH SYSTEMS, INC.

By:__________________________________________
Name:
Title:

FNS 2007, INC.

By:__________________________________________
Name:
Title:

NEXVU TECHNOLOGIES, LLC

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES, INC.

By:__________________________________________
Name:
Title:

20/20 TECHNOLOGIES I, LLC

By:__________________________________________
Name:
Title:

25

CENTREPATH, INC.

By:__________________________________________
Name:
Title:

MAGENTA NETLOGIC, LIMITED

By:__________________________________________
Name:
Title:

VANCO DIRECT USA, LLC

By:__________________________________________
Name:
Title:

[ADD NAME OF NEW SUBS]

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

26

[SIGNATURE PAGE OF HOLDERS TO CGSY SA]

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing entity: _________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

27

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of November ___, 2008 made by

Capital Growth Systems, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

1. Appointment.The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate Midsummer Investment Ltd. (“Midsummer” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by aMajority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

EX-10.15

Exhibit 10.15

EXHIBIT F

SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November __, 2008 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the “Purchasers”) to that certain Securities Purchase Agreement, dated as of the date hereof, between Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers.

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the Company the Company’s Original Issue Discount Secured Convertible Debentures, due seven years following their issuance (the “Debentures”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and

NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:

1.Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

S1-1

2.Guarantee.

(a)Guarantee.

(i)The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(ii)Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Purchasers hereunder.

(iv)The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are indefeasibly paid in full.

(vi)Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.

S1-2

(c)No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Purchasers may determine.

(d)Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

(e)Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

S1-3

(f)Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

(g)Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.

3.Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)Organization and Qualification. The Guarantor is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Purchase Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

(b)Authorization; Enforcement. The Guarantor has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

S1-4

(c)No Conflicts. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation, By-laws or other organizational documents or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

(e)Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

4.Covenants.

(a)Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

(b)So long as any of the Obligations are outstanding, unless Purchasers holding at least 67% of the aggregate principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after the date of this Guarantee:

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(i)other than Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(ii)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(iii)amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any Purchaser;

(iv)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its securities or debt obligations;

(v) pay cash dividends on any equity securities of the Company, provided that nothing contained herein shall prohibit the payment of intracompany dividends in the ordinary course of business consistent with past practice to any parent owning 100% of the equity securities of the Guarantor;

(vi)enter into any transaction with any Affiliate of the Guarantor which would be required to be disclosed in any public filing of the Company with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

(vii)enter into any agreement with respect to any of the foregoing.

5.Miscellaneous.

(a)Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Purchasers holding 67% or more in principal amount of the Debentures then outstanding.

(b)Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 5(b).

(c)No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

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(d)Enforcement Expenses; Indemnification.

(i)Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Purchasers.

(ii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do so pursuant to the Purchase Agreement.

(iv)The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Purchase Agreement and the other Transaction Documents.

(e)Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Purchasers.

(f)Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Purchasers may have.

(g)Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(h)Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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(i)Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(j)Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(k)Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

(l)Acknowledgements. Each Guarantor hereby acknowledges that:

(i)it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(ii)the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(iii)no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Purchasers.

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(m)Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(n)Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents.

(o)Seniority. Except as set forth in Schedule 3.1(ff) of the Purchase Agreement, the Obligations of each of the Guarantors hereunder rank senior in priority to any other Indebtedness (as defined in the Purchase Agreement) of such Guarantor.

(p)Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

20/20 Technologies, Inc.	Magenta netLogic, Limited
By:	By:
Name:	Name:
Title:	Title:
Global Capacity Group, Inc.	CentrePath, Inc.
By:	By:
Name:	Name:
Title:	Title:
Nexvu Technologies, LLC	FNS 2007, INC.
By:	By:
Name:	Name:
Title:	Title:
20/20 TECHNOLOGIES I, LLC
By:__________________________________ Name: Title:_______________________

VANCO DIRECT USA, LLC

By:__________________________________________

Name:

Title:

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ANNEX 1 TO SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ______________________, made by ______________________________, a ______________ corporation (the “Additional Guarantor”), in favor of the Purchasers pursuant to the Purchase Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Purchase Agreement.

WITNESSETH:

WHEREAS, Capital Growth Systems, Inc., a Florida corporation (the “Company”) and the Purchasers have entered into a Securities Purchase Agreement, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the Company (other than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated as of November __, 2008 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(m) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONAL GUARANTOR]

By:

Name:

Title:

A1-1

EX-10.16

Exhibit 10.16

DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT

This Debt Subordination and Intercreditor Agreement (as the same may from time to time be amended, modified or restated, the “Agreement”) is dated as of November __, 2008, and is entered into by and among (a) CAPITAL GROWTH SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL CAPACITY GROUP, INC., a Texas corporation (“GCG”), (c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d) 20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e) 20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f) NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS 2007, INC., a Delaware corporation (“FNS”), (h) VANCO DIRECT USA, LLC, a Delaware limited liability company (“Vanco”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England and Wales (“Magenta”), (j) CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent, GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, Vanco, Magenta and Acquisition are referred to herein individually as a “Debtor” and collectively as the “Debtors”), (k) ENABLE GROWTH PARTNERS, L.P., a Delaware limited partnership, in its capacity as agent for the Debenture Purchasers under and as defined in the Subordinated Debenture Agreements described below (in such capacity, the “Junior Agent”), (l) the Purchasers under and as defined inthe Subordinated Debenture Agreements (Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and collectively as the “Junior Creditors”), (m) each Lender under and as defined in the Senior Loan Agreement described below (each a “Senior Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company, as administrative agent for each of the Senior Lenders under the Senior Loan Agreement (together with each such Senior Lender, collectively, the “Senior Creditor”).

WITNESSETH:

WHEREAS, Certain Junior Creditors have provided financing to Parent pursuant to that certain Securities Purchase Agreement dated as of March 11, 2008 (as amended, restated or otherwise modified from time to time, the “Original Subordinated Debenture Agreement”), as further evidenced by those certain Variable Rate Senior Secured Convertible Debentures due March 11, 2013, made by Parent payable to such Junior Creditors in the aggregate original principal amount of $19,000,000 (collectively, the “Original Debentures”).

WHEREAS, pursuant to the terms of that certain Consent, Waiver, Amendment and Exchange Agreement dated as of even date herewith, by and among the Parent and the Junior Creditors holding Original Debentures identified therein, the Parent and the holders of the Original Debentures have agreed to exchange the Original Debentures for new Amended and Restated Original Issue Discount Secured Convertible Debentures due March 11, 2015, made by Parent to such Junior Creditors in the aggregate original principal amount of $30,847,551 (the “Amended and Restated Debentures”).

WHEREAS, on the date hereof, Junior Creditors will provide additional financing to Parent in the aggregate principal amount of $14,891,250 pursuant to that certain Securities Purchase Agreementdated on or about the date hereof among Junior Creditors and Parent (the “New Subordinated Debenture Agreement”, and, together with the Original Subordinated Debenture Agreement, the “Subordinated Debenture Agreements”), as further evidenced by those certain Original Issue Discount Secured Convertible Debentures due November __, 2015, made by Parent payable to Junior Creditors in the aggregate principal amount of $14,891,250 (each debenture issued under any Subordinated Debenture Agreement, as such debenture may be amended, restated or otherwise modified from time to time, is hereafter referred to as a “Subordinated Debenture”).

WHEREAS, each Debtor other than Parent has guaranteed the obligations of Parent with respect to the Subordinated Debentures pursuant to (i) that certain Subsidiary Guarantee dated as of March 11, 2008, by such Debtors in favor of the holders of the Original Debentures, and (ii) that certain Subsidiary Guaranty dated on or about the date hereof, by such Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Guarantees”), and the obligations of Debtors to Junior Creditors are secured by substantially all assets of Debtors pursuant to (i) that certain Security Agreement dated as of March 11, 2008, by Debtors in favor of the holders of the Original Debentures, and (ii) that certain Security Agreement dated on or about the date hereof, by Debtors in favor of the Junior Creditors (collectively, the “Subordinated Debenture Security Agreements”). All current and future documents relating to the Junior Debt (as hereinafter defined), including without limitation the Subordinated Debentures, the Subordinated Debenture Agreements, the Subordinated Debenture Guarantees, the Subordinated Debenture Security Agreements and any other guaranty, security agreement, pledge agreement, control agreement, mortgage, deed of trust or other instrument, document or agreement executed and/or delivered in connection with any of the foregoing (including any share of stock or other security into which any Subordinated Debenture has been or may be converted), as the same may be amended, modified or restated, are referred to herein as the “Subordinated Debenture Documents”.

WHEREAS, Senior Creditor and Debtors are parties to that certain Loan and Security Agreement dated on or about the date hereof (as amended, restated, or otherwise modified from time to time, and including any Refinancing thereof, the “Senior Loan Agreement”), pursuant to which Senior Creditor has made a loan to the Debtors in the principal amount of $8,500,000. All current and future documents relating to the Senior Debt, as hereafter defined, including without limitation the Senior Loan Agreement and any guaranty, security agreement, pledge agreement, control agreement, mortgage, or deed of trust, and any documents evidencing or relating to any Additional Senior Loans, as the same may be amended, modified or restated, are herein and now referred to collectively and individually as the “Senior Loan Documents”.

WHEREAS, the Senior Debt is secured by the Collateral, as hereafter defined.

WHEREAS, in order to induce Senior Creditor to enter into the Senior Loan Agreement and to provide financing to Debtors thereunder, Junior Creditors and Debtors have agreed to enter into this Agreement in order to subordinate the Junior Debt to the Senior Debt and to subordinate the security interest and other rights of Junior Creditors in the Collateral to the security interest and other rights of Senior Creditor with respect thereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as follows:

1.Certain Defined Terms. In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement will have the following meanings, applicable both to the singular and the plural forms of the terms defined:

“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101 etseq.).

“Bankruptcy Event”: (a) any insolvency or bankruptcy case or proceeding (including any case under the Bankruptcy Code), or any receivership, custodianship, liquidation, reorganization, administration, administrative receivership, arrangement or other similar case or proceeding, relative to any Debtor, or to the assets of any Debtor, (b) any liquidation, dissolution, reorganization or winding up of any Debtor, whether voluntary or involuntary and whether or not involving solvency or bankruptcy, (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Debtor, (d) any sale, transfer or other disposition of all or substantially all of the assets of any Debtor in connection with any of the foregoing, or (e) any application, notice, resolution or order made, passed or given for or in connection with any of the foregoing or any event analogous to any of the foregoing.

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“Blockage Notice”: a written notice from Senior Creditor to Junior Agent that a Non-Payment Default or Payment Default has occurred and is continuing. Any Blockage Notice shall specify the nature of the applicable Payment Default(s) and Non-Payment Default(s).

“Blockage Period”: any period commencing on the date a Blockage Notice is given and ending (a) with respect to a Blockage Period in connection with a Payment Default, on the earliest to occur of (i) the date when such Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default, on the earliest to occur of (i) the date when such Class-1 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 180 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration; and (c) with respect to a Class 2 Non-Payment Default, on the earliest to occur of (i) the date when such Class-2 Non-Payment Default has been cured or waived in writing by Senior Creditor, or (ii) 60 days from the date a Blockage Notice is given if prior to such date the Senior Creditor has not formally accelerated the Senior Debt and undertaken good faith proceedings to effect such acceleration.

“Class 1 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 1 attached hereto.

“Class 2 Non-Payment Default”: each of the Non-Payment Defaults under the Senior Loan Documents described on Schedule 2 attached hereto.

“Collateral”: any and all of the assets now owned or hereafter acquired by any Debtor, together with all proceeds, products, accessions and additions thereto from time to time, including without limitation any insurance proceeds.

“Debtor”: has the meaning ascribed to such term in the introductory paragraph of this Agreement and shall include any successor assign or assign of any Debtor, including, without limitation, a receiver, trustee or debtor-in-possession.

“Deed of Priority”: means that certain Deed of Priority dated as of the date hereof, by and among Magenta and 20/20 LLC, as chargors, Senior Agent, the Junior Creditors, and Parent, Centrepath, GCG, 20/20 Inc., FNS, Nexvu, Acquisition and Vanco.

“Default”: any “Default”, as such term is defined in the Senior Loan Agreement, together with any other default, event of default or other breach of any Senior Loan Document (after giving effect to any applicable notice and cure periods) that entitles Senior Creditor to accelerate the Senior Debt or exercise any other right or remedy against any Debtor.

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“Enforcement Action” shall mean (a) the commencement of legal proceedings by Senior Creditor against the Debtors for the collection of all or substantially all of the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to institution of a lawsuit or the taking of actions to foreclose on substantially all of the collateral securing Senior Debt, including, without limitation, the institution of any enforcement or foreclosure proceedings, the noticing of any public or private sale or other disposition pursuant to the United States Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief from a stay or other injunction restricting any other action described in this definition, (b) the exercise of any right or remedy in connection with a Default as provided under the Senior Loan Documents (including delivery of any notice to seek to obtain payment directly from any account debtor of any Debtor or the taking of any action or the exercise of any right or remedy in respect of the setoff or recoupment against the Collateral or proceeds of Collateral), under applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale, assignment, transfer, lease, or other disposition of all or substantially all of the Collateral, by private or public sale or any other means as permitted under the Senior Loan Documents, (d) the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purpose of marketing or disposing of all or substantially all of the Collateral, provided that any such engagement or retention shall require the applicable party to obtain letters of intent with regard to a transaction within a commercially reasonable period of time and in any event within sixty (60) days following the date of the engagement of such person, or (e) the commencement of, or the joinder with any creditor in commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor, including the appointment of a receiver, interim receiver, trustee or similar official over any Debtor of any assets of any Debtor.

“Junior Agent”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Creditor”: has the meaning set forth in the introductory paragraph of this Agreement.

“Junior Debt”: all indebtedness, fees, expenses, obligations and liabilities of each Debtor to any Junior Creditor, whether now existing or hereafter incurred or created, under or with respect to the Subordinated Debenture Documents, in each case, whether such amounts are due or not due, direct or indirect, absolute or contingent.

“Lien”: any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, equity, statute or contract, and including a security interest, charge, claim or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“New Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Non-Payment Default”: any Default (other than a Payment Default), or any other event (other than a Payment Default) the occurrence of which (after giving effect to any applicable notice and cure periods) entitles the Senior Creditor to accelerate the maturity of any of the Senior Debt, and including all Class 1 Non-Payment Defaults and Class 2 Non-Payment Defaults.

“Original Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

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“Payment Default”: any default in the payment of any Senior Debt (whether upon maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable grace period with respect thereto.

“Person”: any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Refinancing”: any replacement or refinancing of the Senior Debt, provided that such replacement or refinancing indebtedness does not (i) increase the principal amount of the Senior Debt beyond the limits described in clause (a) of the definition of “Senior Debt”, (ii) extend the stated maturity date of some or all of the Senior Debt beyond the maturity date of the Senior Debt as of the date of this Agreement, or (iii) add any additional events of default or financial covenants such that such refinancing indebtedness is materially more restrictive to the Debtors than the Senior Debt as of the date of this Agreement.

“Senior Creditor”: means the Senior Creditor referred to in the introductory paragraph of this Agreement and any other holder of Senior Debt from time to time.

“Senior Creditor Repayment”: the circumstance in which (a) subject to Section 12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of Senior Creditor to make loans under the Senior Loan Agreement has been terminated.

“Senior Debt”: all liabilities of any Debtor to Senior Creditor from time to time outstanding pursuant to or in connection with the Senior Loan Documents (including, without limitation, all principal, interest, fees, reimbursement obligations with respect to letters of credit, indemnities, costs and expenses) up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans at any time outstanding pursuant to the Senior Loan Agreement plus, subject to Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior Loans”); plus (b) all interest arising under or with respect to the Senior Loan Documents, including, in the event of a Bankruptcy Event, any and all post-petition interest and costs from and after the date of filing of a petition by or against any Debtor or its bankruptcy estate, whether or not such amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus (c) all costs and expenses incurred by Senior Creditor in connection with its enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Debt, or the protection of, or realization upon, any Collateral, including, by way of example, court costs, appraisal and consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage, insurance premiums and like items, and whether or not such amounts are allowed as a claim against any Debtor in connection with any Bankruptcy Event; plus (d) all fees, charges, and indemnities owing by any Debtor to Senior Creditor under or in connection with the Senior Loan Documents; plus (e) all principal, interest, fees, costs and expenses in connection with any debtor-in-possession financing provided by Senior Creditor to one or more Debtors in connection with a Bankruptcy Event.

“Senior Loan Agreement”: has the meaning set forth in the recitals of this Agreement.

“Senior Loan Documents”: has the meaning set forth in the recitals of this Agreement.

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“Subordinated Debenture”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Agreement”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Documents”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Guarantees”: has the meaning set forth in the recitals of this Agreement.

“Subordinated Debenture Security Agreements”: has the meaning set forth in the recitals of this Agreement.

2.Subordination of Debt.

(a)Debtors may pay, and Junior Creditors may retain, Permitted Payments (as defined below) with respect to the Junior Debt, provided that following the commencement of an Enforcement Action and for so long as an Enforcement Action remains ongoing, Junior Creditors shall be entitled to no Permitted Payments until the Senior Creditor Repayment shall have occurred, other than Permitted Payments described in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have occurred, no Junior Creditor will ask for, demand, sue for, take or receive from any Debtor, by setoff or in any other manner, the whole or any part of the Junior Debt which does not constitute a Permitted Payment, including, without limitation, the taking of any negotiable instruments evidencing such amounts (other than debentures now or hereafter issued in connection with Junior Debt which are subordinated pursuant to the terms and conditions hereof and which contain the subordination legend required hereby), or the taking of any security for any of the Junior Debt (other than security interests in the Collateral pursuant to the Subordinated Debenture Documents in effect on the date hereof unless permitted by Section 8 hereof), and while an Enforcement Action is outstanding, the holders of the Junior Debt will not accept any Permitted Payments (other than Permitted Payments described in Section 2(c)(i)) (or if received will pay them over to Senior Lender).

(b)Subject to the terms of Section 2(a) above, unless and until the Senior Creditor Repayment shall have occurred, in the event that any Junior Creditor shall receive any cash payment or distribution with respect to the Junior Debt which does not constitute a Permitted Payment, then, in such event, such payment or distribution (other than a Permitted Payment described in Section 2(c)(i)) shall be deemed to have been paid to such Junior Creditor in trust for the benefit of Senior Creditor and shall be immediately paid over to Senior Creditor in the form received by such Junior Creditor (with proper endorsements or assignments, if necessary) to the extent necessary to pay the Senior Debt after giving effect to any concurrent payment to Senior Creditor from other sources.

(c)As used herein, the term “Permitted Payment” shall mean any of the following:

(i)non-cash payments of principal, interest or other amounts due to one or more Junior Creditors pursuant to and in accordance with the Subordinated Debenture Documents via the issuance of Parent’s capital stock;

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(ii)so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments of liquidated damages made pursuant to the Subordinated Debenture Documents as in effect on the date hereof or as amended as permitted by this Agreement;

(iii) so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts (as defined in the Subordinated Debentures) due under the Subordinated Debenture Documents in an amount not to exceed 25% of the Debtors’ Excess Cash Flow (as defined in the Senior Loan Agreement), contemporaneously with the payment of Excess Cash Flow to the Senior Creditor pursuant to Section 2(c)(v) of the Senior Loan Agreement;

(iv) so long as the outstanding principal balance of the Senior Debt is no more than $2,500,000 and so long as no Blockage Period is in effect and no Enforcement Action has been commenced and is continuing, cash payments on account of Quarterly Redemption Amounts due under the Subordinated Debentures, provided that no such payment shall be made unless (x) as of the end of the month immediately preceding payment of any proposed Quarterly Redemption Amount the Debtors are in compliance with each of the financial covenants set forth in the Senior Loan Agreement required to be complied with as of the end of such preceding month, and (y) no less than ten (10) days prior to the proposed date of payment of such Quarterly Redemption Amount, Debtors shall have delivered to Senior Creditor and Junior Creditor Agent written certification of such compliance, together, in the case of Senior Creditor, with calculations in reasonable detail evidencing compliance with such financial covenants (if requested in writing, and only if requested in writing, subject to Section 4.8 of the Original Subordinated Debenture Agreement, the Debtors shall deliver calculations in reasonable detail evidencing compliance with such financial covenants to the Junior Creditor Agent); and

(v)so long as no Blockage Period is in effect an no Enforcement Action has been commenced and is continuing, reimbursement of out of pocket expenses (including, if applicable, legal fees and expenses) payable to Junior Creditors pursuant to the Subordinated Debenture Documents (as in effect as of the date of this Agreement) and Section 32 of this Agreement.

(d)The rights of each Junior Creditor to receive any payments with respect to the Subordinated Debenture Documents (other than Permitted Payments described in Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right to receive Permitted Payments as provided above shall be reinstated, and Debtors may resume making such payments to Junior Creditors (including any payments that were deferred as a result thereof). The aggregate number of days in any consecutive 365-day period during which Blockage Periods may be in effect solely as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be imposed by Senior Creditor as a result of any Non-Payment Default existing on the date that any previous Blockage Notice was given and of which an officer of Senior Creditor had actual knowledge on the date such Blockage Notice was given.

3.Subordination of Liens. Unless and until the Senior Creditor Repayment shall have occurred, each Debtor, for itself and its successors and assigns, covenants and agrees, and each Junior Creditor, for itself and its successors and assigns, hereby covenants and agrees, that all Liens now or hereafter acquired by Senior Creditor in any or all of the Collateral shall at all times be prior and superior to any Lien now held or hereafter acquired by any Junior Creditor in the Collateral. Said priority shall be applicable irrespective of the time or order of attachment or perfection of any Lien or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. The Lien subordination provisions in this Agreement are for the benefit of and shall be enforceable directly by Senior Creditor, and Senior Creditor shall be deemed to have acquired the Senior Debt in reliance upon this Agreement.

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4.Disposition of Collateral.

(a)Each Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior Creditor may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Liens of such Junior Creditor, provided that such Junior Creditor retains any rights it may have as a junior secured creditor with respect to the Junior Debt with respect to the surplus, if any, arising from any such disposition or enforcement. Upon any disposition of any of the Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to execute and immediately deliver any and all releases or other documents or agreements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor, and (ii) authorizes Senior Creditor to record, or cause to have recorded, any UCC financing statements which Senior Creditor deems reasonably necessary to accomplish a disposition thereof free of the Liens of such Junior Creditor (it being understood that Senior Creditor shall not release any Liens of any Junior Creditor in any Collateral which is not the subject of such disposition). Each Junior Creditor agrees that any funds of any Debtor which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and each Junior Creditor shall immediately pay such funds to Senior Creditor to be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a commercially reasonable fashion in connection with any disposition of any Collateral by Senior Creditor.

(b)In the event of a sale or other disposition by any Debtor of some or all of the Collateral in connection with the liquidation or winding up of its business, each Junior Creditor agrees to release its Lien on such Collateral promptly (and in any event within three business days) upon the request of Senior Creditor, whether or not such Junior Creditor will receive any proceeds from such sale, but only if the net proceeds are used to pay the Senior Debt in cash and, if such net proceeds are sufficient to repay the Senior Debt in full, if the remaining proceeds are used to pay the Junior Debt in cash (unless otherwise required by applicable law). Should any Junior Creditor fail to provide a release of its Lien in any such Collateral sold or agree in writing to release its Lien contemporaneously with any such sale in accordance with the provisions of the preceding sentence (including the application of proceeds) within three (3) business days after its receipt of Senior Creditor’s written request, Senior Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in such Junior Creditor’s name. Such power of attorney is coupled with an interest and is irrevocable until the Senior Creditor Repayment shall have occurred.

5.Limitations on Rights and Remedies.

(a)So long as a Blockage Period is in effect or if Senior Lender has commenced and is diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees, severally and not jointly with the other Junior Creditors, that it shall not exercise any rights or remedies with respect to any Debtor or any Collateral, including, without limitation, the right to (a) enforce any Liens or repossess, sell or otherwise foreclose on any portion of the Collateral, or (b) request any action, institute litigation or other proceedings, give any instructions, make any election, notice account debtors or make collections with respect to any portion of the Collateral; provided, however, that if Debtors or Senior Creditor shall cure the applicable event of default under the Subordinated Debenture Documents prior to the taking of such remedial action by any Junior Creditor, no Junior Creditor will take or continue any remedial action with respect to such event of default after the date of such cure; and, until the Senior Creditor Repayment, any payments, distributions or proceeds resulting from the exercise of any such remedial action received by any Junior Creditor shall be subject to the terms of this Agreement and shall be paid or delivered to Senior Creditor as provided in this Agreement; provided, further, notwithstanding anything to the contrary contained herein, Junior Creditors shall not be prohibited (at any time, with or without notice, even during a Blockage Period or while an Enforcement Action is outstanding) from taking action against the Debtors to (x) collect Permitted Payments described in Section 2(c)(i) including, without limitation, seeking specific performance or taking action against the Borrowers to collect capital stock of the Parent at any time any Debtor is obligated to issue the same to the extent such obligation is a non-cash obligation that would constitute a Permitted Payment under Section 2(c)(i), or (y) seeking specific performance against the Debtors to enforce the provisions of the Subordinated Debenture Documents described on Schedule 3 attached hereto.

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(b)To the extent that any Default under the Senior Loan Documents gives rise to a “cross default” under the Subordinated Debenture Documents (a “Junior Cross Default”), the cure or waiver of such Default under the Senior Loan Documents shall be deemed to automatically cure or waive such Junior Cross Default under the Subordinated Debenture Documents. To the extent that any default or event of default under the Subordinated Debenture Documents gives rise to a “cross default” under the Senior Loan Documents (a “Senior Cross Default”), the cure or waiver of such default or event of default under the Subordinated Debenture Documents shall be deemed to automatically cure or waive such Senior Cross Default under the Senior Loan Documents.

6.Intercreditor Arrangements in Bankruptcy.

(a)Notwithstanding any Bankruptcy Event, this Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the Bankruptcy Code, and all references herein to any Debtor shall be deemed to apply to such entity as debtor in possession and to any trustee in bankruptcy for the estate of such entity.

(b)Except as otherwise specifically permitted in this Section 6, until the Senior Creditor Repayment, no Junior Creditor shall assert, without the written consent of Senior Creditor, which consent may be granted or withheld in Senior Creditor’s sole discretion, any claim, motion, objection, or argument in respect of any Collateral in connection with any Bankruptcy Event which could otherwise be asserted or raised in connection with such Bankruptcy Event by such Junior Creditor as a secured creditor of the applicable Debtor, including without limitation any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of any Collateral.

(c)Without limiting the generality of the foregoing, each Junior Creditor agrees that if a Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as Senior Creditor, in its discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor may (A) provide financing to any Debtor or (B) consent to the granting of a priming Lien to secure postpetition financing, in each case pursuant to Section 364 of the Bankruptcy Code or other applicable law and on such terms and conditions and in such amounts as Senior Creditor, in its sole discretion, may decide without seeking or obtaining the consent of such Junior Creditor as holder of an interest in the Collateral; (iii) such Junior Creditor shall not oppose any Debtor’s use of cash collateral to the extent such use has been approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale or other disposition of any Collateral free and clear of Liens or other claims of any Person, including such Junior Creditor, under Section 363 of the Bankruptcy Code if Senior Creditor has consented to such sale or disposition of such assets.

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(d)Each Junior Creditor agrees that it will not initiate, prosecute, encourage, or assist with any other Person to initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of this Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s claim against any of the Debtors, (iii) challenging the perfection or enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if any.

(e)Notwithstanding any other provision of this Section 6, (i) each Junior Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of such Junior Creditor, including without limitation any claims secured by the Collateral, and (ii) each Junior Creditor shall be entitled to file any pleadings, objections, motions or agreements which (y) assert rights or interests available to unsecured creditors of the applicable Debtor arising under either the Bankruptcy Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’ rights to the Collateral after giving effect to the Senior Creditor Repayment which do not adversely affect the rights of Senior Creditor.

7.Bankruptcy Event. In the event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors, the following shall apply:

(a)Upon any payment or distribution of assets or securities of any kind or character, whether in cash, securities or other property, of any Debtor or the estate created by the commencement of any such Bankruptcy Event, the Senior Debt shall first be paid irrevocably in full in cash before any Junior Creditor shall be entitled to receive any payment or distribution of any cash, securities or other property on account of the Junior Debt.

(b)Senior Creditor shall be entitled to receive from Debtors and any other Person making any distribution in accordance with clause (a) above any payment or distribution of any kind or character, whether in cash, securities or other property which may be payable or deliverable in respect of the Junior Debt in connection with any such Bankruptcy Event for application to the payment of the Senior Debt (to the extent necessary to pay such Senior Debt after giving effect to any concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority to pay or otherwise deliver all such payments or distributions to Senior Creditor as required by this clause (b).

(c)In the event that, notwithstanding the foregoing provisions of clause (b) above, any Junior Creditor receives any payment from or distribution of assets or securities of any Debtor or the estate created by the commencement of any such Bankruptcy Event, of any kind or character in respect of the Junior Debt, whether in cash, securities or other property before the Senior Creditor Repayment shall have occurred, then, and in such event, such payment or distribution shall be received and held in trust by such Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over or delivered by such Junior Creditor to Senior Creditor to the extent necessary to pay the Senior Debt in full after giving effect to any concurrent payment to Senior Creditor. In addition, to the extent that Senior Creditor receives a payment in excess of the amount required to effectuate the Senior Creditor Repayment, then Senior Creditor shall, unless otherwise required by applicable law or court order, hold such excess amount in trust for the Junior Creditors and promptly pay such excess amount to Junior Agent for the benefit of Junior Creditors, and Junior Agent and Junior Creditors shall allocate such amount among themselves in such manner as they elect.

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(d)Each Junior Creditor covenants and agrees to provide Senior Creditor with a copy of any proof of claim filed by such Junior Creditor in connection with any Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a copy of any proof of claim filed by Senior Creditor in connection with any Bankruptcy Event.

(e)In connection with any Bankruptcy Event, each Junior Creditor agrees that it shall not vote to accept or approve any plan of partial or complete liquidation, reorganization, arrangement, composition or extension (nor shall it provide any financing to any Debtor or its affiliates under any such plan) that would (i) not provide for the payment in full of all Senior Debt in cash, unless Senior Creditor has voted to accept such plan (which vote shall be within Senior Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or any affiliate thereof to receive any payment in respect of Junior Debt (other than current interest in connection with any debt owing to such Junior Creditor pursuant to a plan of reorganization, provided that the payment of such current interest is subordinated to the Senior Debt on substantially the terms set forth herein) prior to the Senior Creditor Repayment.

8. No Additional Liens. Other than as set forth in the Subordinated Debenture Security Agreements, each Junior Creditor hereby represents, severally, and not jointly with the other Junior Creditors, that such Junior Creditor has not been granted or obtained any Liens in any assets of any Debtor or any other assets securing the Senior Debt. Each Junior Creditor agrees that, without the prior written consent of Senior Creditor, no Junior Creditor will take any other Liens on any assets of any Debtor or any other assets as security for the Junior Debt unless Senior Creditor also has a Lien on such assets which is senior to that of the applicable Junior Creditor, and no Junior Creditor shall obtain any additional guarantees for the Junior Debt unless the Person obligated under such guaranty also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s) is subordinated to such guaranty in favor of Senior Creditor in a manner consistent with the terms and conditions of this Agreement pursuant to documentation reasonably acceptable to Senior Creditor.

9. Junior Debt Owed Only to Junior Creditors; Restrictions on Transfer.

(a)Each Junior Creditor represents and warrants severally, and not jointly with the other Junior Creditors that: (a) no Junior Creditor has previously assigned any interest in the Junior Debt or any Lien in connection therewith, if any; (b) no Person other than Junior Creditors owns an interest in any Junior Debt or security therefor (whether as joint holders of the Junior Debt, participants or otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors. Each Junior Creditor covenants that, in the event that such Junior Creditor wishes to transfer, in whole or in part, all or any part of the Junior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Junior Debt and all Liens therefor, and such Junior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to Senior Creditor a written acknowledgment in form and substance reasonably acceptable to Senior Creditor, pursuant to which such proposed transferee acknowledges that it will constitute a Junior Creditor hereunder and be bound by the terms and conditions hereof.

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(b)Senior Creditor covenants that, in the event that the Senior Creditor wishes to transfer, in whole or in part, all or any part of the Senior Debt or any Lien therefor to another Person, then the terms and conditions of this Agreement will be and remain binding upon the Senior Debt and all Liens therefor, and Senior Creditor shall cause such proposed transferee, before any such transfer is made, to execute and deliver to the Junior Creditors a written acknowledgment that such proposed transferee acknowledges that it will constitute a Senior Creditor hereunder and be bound by the terms and conditions hereof. Senior Creditor agrees that (i) in the event of any transfer by Senior Creditor of less than all of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative agent for the holder(s) of Senior Debt (including for purposes of administering and enforcing this Agreement), and (ii) in the event of the transfer by Senior Creditor of all of the Senior Debt then held by Senior Creditor, prior to consummating any such transfer, Senior Creditor shall notify Junior Agent of such proposed transfer (the “Transfer Notice”) (which notice shall include the identity of the proposed transferee(s) and the scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer Date”)), and Junior Creditors shall have the right to exercise the Purchase Option with respect to all, but not less than all of the Senior Debt, upon the terms and conditions described in Section 10 below; provided, however, that in such event Junior Creditors desiring to exercise the Purchase Option shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall consummate the Purchase Option and pay the Option Purchase Price no later than the later of (A) the Scheduled Transfer Date identified in the Transfer Notice, or four (4) business days following the date of delivery of the Purchase Option Notice.

10. Purchase Option.

(a)Senior Creditor shall give Junior Agent a copy of any written notice of acceleration of any Senior Debt given by Senior Creditor to one or more Debtors, concurrently with, or as soon as practicable after, the giving of such notice to such Debtors. For a period of 10 calendar days following receipt of such notice by Junior Agent (the “Option Period”), Junior Creditors shall have the option (the “Purchase Option”) to purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as defined below) and (ii) all of Senior Creditor’s right, title and interest in and to, and all of Senior Creditor’s obligations under, the Senior Loan Documents (excluding the Retained Interests, as defined below, and excluding all rights and remedies of Senior Creditor under and with respect to any warrant, registration rights agreement, capital stock of any Debtor and other similar equity investments) (all such property referred to in clauses (i) and (ii) being collectively called the “Assigned Interests”). At any time during the Option Period, Junior Creditors may exercise the Purchase Option by causing Junior Agent to deliver to Senior Creditor a written notice of intent to exercise the Purchase Option (the “Purchase Option Notice”), in which notice Junior Agent shall specify the date of closing (which shall be a business day within the Option Period). On the closing date specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an assignment agreement in form and substance satisfactory to Senior Creditor and Junior Creditors, assign all of its right, title and interest in and to the Assigned Interests to Junior Creditors, without representation, recourse or warranty (except as expressly set forth below), upon Senior Creditor’s receipt of payment, in cash (and in immediately available federal funds by wire transfer to a bank account designated by Senior Creditor), of the purchase price (the “Option Purchase Price”), which shall be an amount equal to 100% of the Senior Debt owed on the date of payment to Senior Creditor (it being understood and agreed to by all parties that any purchase and sale consummated pursuant to this Section 10 shall be deemed to be a prepayment of all of the Senior Debt for all purposes of the Senior Loan Documents), including, without limitation, (w) all unpaid interest, fees and any other charges, without regard to whether or not such amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy Code or otherwise, (x) any prepayment fee or early termination fee set forth in the Senior Loan Documents, and (y) any amounts that are due and payable to Senior Creditor in respect of claims for which Senior Creditor is entitled to indemnification under the Senior Loan Documents, but excluding the Retained Debt. Without duplication of any amounts to be paid as part of the Option Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of closing on the Purchase Option cash collateral as security to Senior Creditor for the payment of all Asserted Known Indemnification Claims, as defined below, such cash collateral to be an amount equal to 100% of such claims. The election to exercise the Purchase Option pursuant to the Purchase Option Notice shall be irrevocable and shall fully obligate and commit Junior Creditors to acquire the Assigned Interests as herein provided. The amount of and payment of the Option Purchase Price or any other sum required to be paid by Junior Creditors to Senior Creditor pursuant to this Section 10 shall not be subject to any defense, reduction, recoupment or offset, for any reason, including, without limitation, any breach or alleged breach by Senior Creditor at any time of any provision of this Agreement. The failure of Junior Agent to deliver the Purchase Option Notice so that it is received by Senior Creditor prior to expiration of the Option Period or to consummate the purchase pursuant to the Purchase Option as provided herein prior to the expiration of the Option Period shall result in the forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in its sole discretion. As used herein, the term “Retained Debt” shall mean any and all amounts required to be paid by any Debtor to Senior Creditor pursuant to any indemnity provisions contained in any of the Senior Loan Documents, the claim for which arises or becomes due and payable after the consummation of the purchase by Junior Creditor pursuant to the Purchase Option; the term “Retained Interests” shall mean the rights and interest retained by Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale and the assignment of the Assigned Interests, in respect of the Retained Debt and in respect of indemnification obligations of Debtors in accordance with the Senior Loan Documents (all of which shall survive the sale and assignment of the Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known Indemnification Claim” means any matters or circumstances for which notice or demand has been made or asserted against Senior Creditor in writing that at the time of determination could reasonably be expected to result in direct or actual damages and expenses (including, without limitation, reasonable and documented attorneys' fees and disbursements but excluding special, indirect, consequential or punitive damages to Senior Creditor) to Senior Creditor and which are subject to indemnification by any Debtor pursuant to the terms of the Senior Loan Documents. Any reference to the amount of any Asserted Known Indemnification Claim shall mean that amount as reasonably determined by Senior Creditor in light of the facts and circumstances of the underlying claim. In connection with any such sale or assignment, each Debtor agrees to execute and deliver to Senior Creditor all such agreements, instruments or documents as Senior Creditor may reasonably request to evidence the survival of such rights, interest and obligations. The grant of the Purchase Option shall not operate to restrict Senior Creditor from assigning or transferring to any Person any or all of its loan commitments under the Senior Loan Documents or any Senior Debt owing to it or any of its rights or other interests under the Senior Loan Documents, so long as such Person agrees to be bound by the terms of this Section 10.

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(b)The purchase price and any cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of Senior Creditor as Senior Creditor may designate in writing to Junior Agent for such purpose. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account prior to 1:00 p.m. Central time. Interest shall be calculated to and including the business day on which such purchase and sale shall occur if the amounts so paid by Junior Creditors to the bank account designated by Senior Creditor are received in such bank account after 1:00 p.m. Central time.

(c)The obligation of Senior Creditor to consummate any sale pursuant to the Purchase Option shall be subject to (i) obtaining any required approval of any applicable governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in form and substance satisfactory to Senior Creditor) from Junior Creditors to reimburse Senior Creditor for any loss, cost or expense (including interest at the rate applicable under the Senior Loan Agreement) outstanding on the date the Purchase Option is exercised and reasonable attorney’s fees and other legal expenses) relating to any payment items that have been provisionally credited to any of the Senior Debt and that are returned unpaid or are otherwise dishonored or charged back.

(d)Any purchase pursuant to the Purchase Option shall be without any representation or warranty of any kind by Senior Creditor as to any of the Assigned Interests or otherwise and without recourse to Senior Creditor, except that Senior Creditor shall represent and warrant to Junior Creditors: (i) the amount of the Senior Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such Senior Debt freeand clear of any Liens and (iii) that Senior Creditor has the right to assign such Senior Debt and the assignment is duly authorized.

(e)Upon the consummation of any purchase and sale pursuant to the Purchase Option, Junior Creditors (and not Senior Creditor) shall thereafter be obligated pursuant to the terms of the Senior Loan Documents with respect to the Assigned Interests and responsible for the discharge and performance of all of the duties, responsibilities and obligations of Senior Creditor under the loan commitments included within the Assigned Interests, with the Junior Creditors thereafter being deemed to be the “Lender” for all purposes under the Senior Loan Documents (except with respect to the Retained Debt and Retained Interests) and with Senior Creditor thereafter being released from its duties, responsibilities and obligations under the Senior Loan Documents.

(f)All Retained Debt shall remain secured by the Collateral, Junior Agent shall act as collateral agent for Senior Creditor in connection with all Retained Debt and Senior Creditor shall have the benefits of the Retained Interests in the Senior Loan Documents. Senior Creditor shall be entitled to payment in respect of such Retained Debt on the due date of any such Retained Debt.

(g)Each Debtor agrees that any such sale and assignment by Senior Creditor of the Assigned Interests shall not operate to terminate or impair such Debtor’s obligations to indemnify Senior Creditor or the obligations of such Debtor with respect to any Retained Rights under the Senior Loan Documents or otherwise, all of which indemnity and other obligations with respect to the Retained Rights shall survive any such sale and assignment. Nothing in this Section 10 shall be deemed to require Senior Creditor to extend any credit to any Debtor during the Option Period.

(h)Junior Creditors agree that, after consummation of any purchase of the Assigned Interests in accordance with this Section 10, Junior Creditors will not authorize or allow any amendment to be made to any of the provisions of the Senior Loan Documents in a manner that would restrict or otherwise adversely effect the Retained Interests or the security for the Retained Debt.

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(i)For avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor shall not be required to provide any prior notice to Junior Creditor of Senior Creditor’s commencement of, or intent to commence, any enforcement action against or with respect to any Debtor or any of the Collateral, and Senior Creditor shall not be obligated to forbear from taking any such enforcement action during the Option Period.

(j)Notwithstanding anything herein to the contrary, the rights and obligations of each Junior Creditor hereunder are several and not joint with the rights and obligations of any other Junior Creditor and no Junior Creditor shall have liability or obligations hereunder unless and until such Junior Creditor duly exercises its rights hereunder in its sole discretion.

11. Continuing Nature of Subordination. This Agreement will be effective and may not be terminated or otherwise revoked by any Junior Creditor until the Senior Creditor Repayment shall have occurred. Each Junior Creditor hereby waives to the fullest extent permitted by applicable law any right it may have to terminate or revoke this Agreement or any of the provisions of this Agreement. In the event that any Junior Creditor has any right under applicable law otherwise to terminate or revoke this Agreement which right cannot be waived, such termination or revocation will not be effective until written notice of such termination or revocation, signed by such Junior Creditor, is actually received by Senior Creditor’s officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Senior Creditor may continue, at any time and without notice to any Junior Creditor, to extend credit or other financial accommodations and loan monies to or for the benefit of Debtors on the faith hereof. Any termination or revocation described hereinabove will not affect this Agreement in relation to any of the Senior Debt which arose or was committed to prior to receipt thereof.

12. Invalidated Payments; Waivers by Junior Creditors.

(a)To the extent that Senior Creditor receives payments or transfers on the Senior Debt or proceeds of the Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, common law, or equitable cause or pursuant to the Senior Loan Documents, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

(b)Each Junior Creditor hereby waives and releases, to the fullest extent permitted by applicable law, any claim which such Junior Creditor may now or hereafter have against Senior Creditor arising out of any and all actions which Senior Creditor takes or omits to take with respect to any Debtor, any Collateral or any Senior Loan Document, including, without limitation: (a) any action or inaction with respect to the creation, perfection or continuation of Liens on the Collateral and other security for the Senior Debt, (b) any action or inaction with respect to the occurrence of any Default, (c) any action or inaction with respect to the foreclosure upon, repossession, sale, release or depreciation of, or failure to realize upon, any of the Collateral, (d) any action or inaction with respect to the collection of any claim for any part of the Senior Debt from any account debtor, guarantor, or any other Person, (e) any other action or inaction with respect to the enforcement of the Senior Loan Documents or the valuation, use, protection or disposition of the Collateral or any other security for the Senior Debt, (f) the election of Senior Creditor, in any proceeding instituted under Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code; provided, however, that the foregoing shall not apply to any actions or omissions of Senior Creditor constituting a violation of applicable law or a violation of this Agreement or, with respect to matters relating to the realization, foreclosure or other disposition of Collateral, the failure of Senior Creditor to act in a commercially reasonable manner.

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13.Additional Senior Debt; Amendments to Loan Documents.

(a)Senior Creditor may from time to time in its discretion make Additional Senior Loans to the Debtors, provided, that prior to making any such Additional Senior Loan Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan Notice”) of the proposed terms and conditions thereof (including, without limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior Loan Funding Date”), and all other material terms relating to such proposed Additional Senior Loan), which notice shall be accompanied by the definitive agreements that Senior Creditor would propose to use in connection with such Additional Senior Loan (the “Proposed Additional Senior Loan Documents”), and Junior Creditors shall have the option to provide all but not less than all of such Additional Senior Loan on the terms set forth in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment Notice”) within three (3) business days following receipt of an Additional Senior Loan Notice of Junior Creditors’ election whether or not to provide the Additional Senior Loan to the Debtors on the terms described in the Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents (provided that the failure of Junior Agent to respond within such time period shall be deemed to be an election of Junior Creditors not to provide such Additional Senior Loan), which notice shall (i) identify the applicable Junior Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date on which such Junior Creditors propose to fund such Additional Senior Loan to the Borrowers, which shall be no later than seven (7) days following the date of the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’ commitment to make such Additional Senior Loan on the applicable terms and conditions. If requested by Borrowers, Senior Creditor may, in its sole discretion, elect to fund the Additional Senior Loan prior to the agreed date of funding by Junior Creditors, in which event Senior Creditor shall so notify Junior Agent, and the applicable Junior Creditors shall, no later than the date seven (7) days following the date of the Junior Creditor Commitment Notice, fund such Additional Senior Loan to Borrowers with the proceeds to be used to repay the amount advanced by Senior Creditor. If Junior Creditors elect to make the Additional Senior Loan, Junior Creditors shall execute and deliver the Additional Senior Loan Documents and, if applicable, enter into an appropriate amendment of this Agreement. Notwithstanding anything to the contrary set forth herein, the Senior Creditor shall not make Additional Senior Loans in an amount such that the aggregate amount of Senior Debt would exceed the amount described in clause (a) of the definition of “Senior Debt”.

(b)Senior Creditor, at any time and from time to time, may enter into such agreements, amendments and modifications with any Debtor as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms and conditions of all or any portion of the Senior Debt or affecting the security underlying any or all of the Senior Debt, all without affecting the rights of Senior Creditor hereunder; provided, however, that Senior Creditor shall not, without the prior written consent of Junior Creditors holding at least 67% of the outstanding principal amount of Debentures, agree to any such amendment or modification which (i) increases the principal amount of the Senior Debt beyond the limits described in the definition of “Senior Debt” set forth herein, (ii) extends the stated maturity date of some or all of the Senior Debt; or (iv) adds any additional events of default or financial covenants.

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(c)Junior Creditors agree with Senior Creditor that the Subordinated Debenture Documents may not be materially modified or amended without the prior written consent of Senior Creditor (including, without limitation, any amendment which has the effect of shortening the maturity of the Junior Debt, accelerating the due date of any payment with respect thereto, increasing the interest rate or any fees or liquidated damages payable in cash with respect thereto, requiring any amount not required to be paid in cash thereunder to be paid in cash, or making any covenant more restrictive on any Debtor); provided, however, that Junior Creditors and Debtors may amend the terms and conditions of any non-cash payment obligations pursuant to the Subordinated Debenture Documents without the consent of Senior Creditor.

14.No Waiver by Senior Creditor. No right of Senior Creditor to enforce the subordination or other terms as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Debtor or by any act or failure to act by Senior Creditor, or by any noncompliance by any Debtor with the terms, provisions and covenants of this Agreement, the Senior Loan Documents or the Subordinated Debenture Documents, regardless of any knowledge thereof which Senior Creditor may have or be otherwise charged with. No waiver will be deemed to be made by Senior Creditor of any of Senior Creditor’s rights hereunder, unless the same will be in writing signed on behalf of Senior Creditor, and each waiver, if any, will be a waiver only with respect to the specific instance involved and will in no way impair the rights of Senior Creditor or the obligations of any Junior Creditor to Senior Creditor in any other respect at any other time. The failure of Senior Creditor to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of Senior Creditor thereafter to enforce each and every such provision. No waiver by Senior Creditor of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach.

15.Certain Stock Certificates. Junior Agent hereby represents and warrants to Senior Creditor that Junior Agent is in possession of the stock certificates and membership interest certificates of Debtors described on Exhibit A attached hereto (the “Certificates”). Promptly following the closing of the transactions contemplated by the Senior Loan Agreement (and in any event within 5 business days), Junior Agent shall provide the Certificates to Senior Creditor, and Junior Agent hereby agrees that, until such time, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection. Within 5 business days following the date that the Senior Creditor Repayment occurs, Senior Creditor shall redeliver the Certificates to the Junior Agent, subject to the undertaking by the Junior Creditors that if a Bankruptcy Event occurs within 90 days following the date of the Senior Creditor Repayment, then the Junior Agent shall promptly return the Certificates to Senior Creditor and, until such return, Junior Agent shall hold such Certificates as Senior Creditor’s agent for purposes of perfection.

16. Information Concerning Financial Condition of Debtors; Notices of Default.

(a)Each Junior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Junior Debt and/or the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will not have any duty to advise such Junior Creditor of any information regarding such condition or any such circumstances. In the event that Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to any Junior Creditor, Senior Creditor will be under no obligation (i) to provide any such information to any Junior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which Senior Creditor wishes to maintain as confidential.

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(b)Senior Creditor hereby assumes responsibility for keeping informed of the financial condition of Debtors, any and all endorsers and any and all other guarantors of the Senior Debt and/or the Junior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior Creditor hereby agrees that no Junior Creditor will have any duty to advise Senior Creditor of any information regarding such condition or any such circumstances. In the event that any Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Senior Creditor, such Junior Creditor will be under no obligation (i) to provide any such information to Senior Creditor on any subsequent occasion, or (ii) to undertake any investigation or to disclose any information which such Junior Creditor wishes to maintain as confidential.

(c)Each Junior Creditor agrees to make reasonable efforts to provide Senior Creditor with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of any Junior Creditor to provide such notice to Senior Creditor shall not result in any liability of such Junior Creditor to Senior Creditor or limit any rights of such Junior Creditor hereunder.

(d)Without limiting the obligation of Senior Creditor to provide Junior Agent with a copy of any notice of acceleration as set forth in Section 10(a), Senior Creditor agrees to make reasonable efforts to provide Junior Agent with a copy of any notice of default to any Debtor within three business days of such notice to such Debtor, but any failure of Senior Creditor to provide such notice to Junior Agent shall not result in any liability of Senior Creditor to Junior Agent or any Junior Creditor or limit any rights of Senior Creditor hereunder.

17.Payments to Senior Creditor Do Not Reduce Junior Debt. Each Debtor acknowledges and agrees that any payment by or on behalf of any Debtor with respect to any Junior Debt which is paid over to Senior Creditor pursuant to the terms and conditions hereof shall not be deemed to reduce the Junior Debt.

18.Cure of Payment Default. If a Payment Default exists at any time, Senior Creditor agrees that any Junior Creditor may cure such Payment Default by paying to Senior Creditor, in immediately available funds, the amount necessary to cure such Payment Default, and Senior Creditor agrees to accept such payment from such Junior Creditor for application to the Senior Debt. Nothing contained herein shall be deemed to obligate Senior Creditor to notify Junior Creditor of the existence of any Default.

19.Relationship Among Junior Creditors and Junior Agent, Waiver of Marshalling. Each Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that Senior Creditor has no knowledge of, and shall not have any duty or responsibility for determining, the relative rights and obligations of Junior Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior Creditor, on the other hand, with respect to any Subordinated Debt, any Collateral, any Subordinated Debenture Document, the Subordinated Debt Control Account or otherwise

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Each Debtor and each Junior Creditor hereby waives any right to require marshalling of any assets by Senior Creditor and any similar rights.

20.Confirmation of Appointment of Junior Agent. Each of the undersigned Junior Creditors hereby designates Enable Growth Partners, LP (“EGP”) as Junior Agent under this Agreement (including for purposes of receiving notices on behalf of each Junior Creditor), and agrees that EGP’s rights, responsibilities and immunities as Junior Agent shall be as set forth in Annex B to the Subordinated Debenture Security Agreement.

21.CONSENT TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

(a)EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUMNONCONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK.

(b)EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS HEREOF.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22.ARM’S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.

23.INJUNCTIVE RELIEF. EACH JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

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SENIOR CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.

24.Notices. Except as otherwise provided for herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication will or may be given to or served upon either of the parties by the other, or whenever either of the parties desires to give or serve upon the other communication with respect to this Agreement, such notice, demand, request, consent, approval, declaration or other communication will be in writing (including, but not limited to, facsimile communication), and will either be delivered in person, telecopied, sent by reputable overnight courier or mailed by first class mail, or registered or certified mail, return receipt requested, postage prepaid or provided for, addressed as follows:

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(a)If to Senior Creditor at:

Archer Capital Management, L.P.

570 Lexington Avenue

40^th Floor

New York, New York

Attn.: Mr. Gary Katz

Fax: (2112) 319-1032

With a copy to:

Greenberg Traurig, LLP

One International Place

Boston, Massachusetts 02110

Attn: Jeffrey M. Wolf,. Esq.

Fax: (617) 310-6001

(b)If to Junior Agent at:

Enable Growth Partners, L.P.

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn.:

Fax: (415)  677-1580

With a copy to:

Feldman Weinstein & Smith LLP

420 Lexington Avenue

New York, New York 10170

Attn.: Michael F. Nertney, esquire

Fax: (212) 401-4741

(c)If to any other Junior Creditor, at its address or facsimile number set forth beneath its signature block on the signature pages to this Agreement.

(d)if to any Debtor at:

Capital Growth Systems, Inc.

500 W. Madison Street

Suite 2060

Chicago, Illinois 60661

Attn.: Patrick C. Shutt, CEO

Fax: 312-673-2422

or to such other address as any party designates to the other parties in the manner herein prescribed. Any such notice shall be deemed to have been duly given or made (w) when delivered by hand against acknowledgment of receipt or (x) three business days after being deposited in the mail, postage prepaid or (y) one business day after being sent by priority overnight mail with an internationally recognized overnight delivery carrier or (z) if by telecopy or facsimile, when confirmed in writing by the sender’s facsimile device if sent on business day at the office of the recipient, otherwise on the next business day.

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25.GOVERNING LAW. ANY DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE OF NEW YORK.

26.Counterparts; Facsimile or E-mail Effectiveness. This Agreement may be executed in one or more counterparts, each of which will be considered an original counterpart, and will become a binding agreement when Senior Creditor, Junior Creditors and Debtors have each executed one counterpart. Each of the parties hereto agrees that a signature transmitted to Senior Creditor or its counsel by facsimile transmission or by electronic mail will be effective to bind the party so transmitting its signature.

27.Deed of Priority. Senior Creditor and Junior Creditors hereby acknowledge and agree that the Deed of Priority is intended to supplement this Agreement, and no party shall take any action relative to the Deed of Priority that is inconsistent with the terms of this Agreement. In the event that any provision of the Deed of Priority conflicts with any provision of this Agreement, the terms of this Agreement shall control over the Deed of Priority in all respects.

28.Complete Agreement; Merger. This Agreement, including the schedules and exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party will be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

28.No Third Party Beneficiaries. This Agreement is solely for the benefit of Senior Creditor and its respective successors and assigns and Junior Creditors and their respective successors and assigns and is not intended to confer upon any Debtor or any other third party any rights or benefits.

30.Severability. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

31.Section Titles. The section titles contained in this Agreement are and will be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

32.No Strict Construction. The parties (directly and through their counsel) hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

33.Further Assurances. Each party hereto will, at the expense of Debtors, and at any time and from time to time, promptly execute and/or authorize and deliver all further instruments and documents, and take all further action, that any other party hereto may reasonably request in order to perfect or otherwise protect any right or interest granted or purported to be granted hereby or to enable any party to exercise and enforce its rights and remedies hereunder, including, without limitation, appropriate amendments to financing statements authorized by any Debtor in favor of any Junior Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).

34.Expenses. Debtors shall pay to Senior Creditor, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for Senior Creditor, which Senior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or any Junior Creditor, and all such amounts shall constitute part of the Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of counsel for such Junior Creditor, which such Junior Creditor may incur in connection with the exercise or enforcement of any of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such amounts shall constitute part of the Junior Debt.

35.Termination. This Agreement shall terminate on the date that the Senior Creditor Repayment.

36.Independent Nature of Junior Creditors’ Obligations and Rights. The obligations of each Junior Creditor hereunder are several and not joint with the obligations of any other Junior Creditor, and no Junior Creditor shall be responsible in any way for the performance or non-performance of the obligations of any other Junior Creditor hereunder. Nothing contained herein, and no action taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the Junior Creditors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Junior Creditors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Junior Creditor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Junior Creditor to be joined as an additional party in any proceeding for such purpose.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been executed and delivered as of the date first written above

Senior Creditor:ACF CGS, L.L.C., as Agent under the Senior Loan Agreement and as Senior Lender

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Agent:ENABLE GROWTH PARTNERS, L.P.

By:

Name:

Title:

[Signature Page to Debt Subordination and Intercreditor Agreement]

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Junior Creditors:MIDSUMMER INVESTMENT, LTD.

By:

Name:

Title:

Notice Address:

Attn: ______________________

[Signature Page to Debt Subordination and Intercreditor Agreement]

EX-10.17

Exhibit 10.17

INTER-CREDITOR AGREEMENT

This INTER-CREDITOR AGREEMENT (the “Agreement”) is made and effective as of November __, 2008, by and between the holders of Capital Growth Systems, Inc.’s Original Issue Discount Secured Convertible Debentures Due March 2015signatory hereto (“Existing Creditors”) and the New Creditors (as defined below) (the Existing Creditors and the New Creditors are collectively referred to as the “Creditors”).

RECITALS

WHEREAS, the Existing Creditors are the parties to that certain Securities Purchase Agreement dated March 11, 2008 (the “Purchase Agreement”) by and between each Existing Creditor and Capital Growth Systems, Inc. (the “Company”) and are the holders of Original Issue Discount Secured Convertible Debentures Due, subject to the terms therein, March 2015, with an aggregate total face amount of $30,877,552 executed by the Company in favor of the Existing Creditors (the “Existing Indebtedness”), and the Existing Creditors are the beneficiaries of that certain Security Agreement dated March 11, 2008 (the “Security Agreement”) between the Company and the Existing Creditors and Enable Growth Partners, LP (“Collateral Agent”), as collateral agent for the benefit of the Existing Creditors (“Collateral Agent”);

WHEREAS, pursuant to that certain Securities Purchase Agreement dated November ___, 2008, the investors signatory thereto (the “New Creditors”) will be purchasing $14,891,250, in the aggregate principal amount of Original Issue Discount Secured Convertible Debentures due, subject to the terms therein, seven years from their issuance, from the Company (the “New Indebtedness” and together with the Existing Indebtedness, the “Indebtedness”);

WHEREAS, the New Indebtedness will also be secured by all assets of the Company;

WHEREAS, the New Indebtedness and the Existing Indebtedness will also be secured by all assets of the Company on a paripassu basis;

WHEREAS, the Creditors wish to memorialize their agreements concerning their respective rights, duties and obligations to one another with respect to the security interests granted under the Indebtedness.

NOW, THEREFORE, in consideration of the mutual covenants herein, their respective performances and benefits pertaining to the Indebtedness, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Ranking.

1.1 The Indebtedness shall rank in the following order of priority: any sums secured or owed to the Existing Creditors or the New Creditors, pari passu and pro-rata in proportion to such Creditor’s outstanding principal amounts of Indebtedness at any given time that a determination needs to be made of pro-rata holdings. For clarity, as of the date of the closing of the issuance of the New Indebtedness, the pro-rata holdings of the Existing Creditors (collectively) are $30,877,552 and the pro-rata holdings of the New Creditors (collectively) are $14,891,250. The Creditors authorize the Collateral Agent to perform its obligations under the Security Agreements pursuant to this provision. The Company and each Subsidiary agree that all payments of Obligations under the New Indebtedness and the Existing Indebtedness shall be made in accordance with the relative priorities and proportions set forth herein. In addition, the Company hereby agrees to cause all direct and indirect subsidiaries hereafter formed or acquired to agree to be bound by the terms of this Agreement.

1.2 If an Event of Default (as defined under any Indebtedness) occurs and any party hereto receives payment from the Company not in compliance with this Agreement, the other parties hereto shall be immediately notified and such payment shall be shared with all of the other Creditors in proportion to their respective pro-rata holdings as set forth above.

1.3 If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Indebtedness, the other parties shall be immediately notified and such payment shall be shared with all of the other Creditors as set forth above.

1.4 Notwithstanding any other provision in this Agreement, adjustments shall be made between the Creditors from time to time to reflect the fact that any contingent obligation taken into account as an obligation under the Indebtedness becomes satisfied or incapable of maturing into an actual obligation.

1.5 Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the New Indebtedness or the Existing Indebtedness and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Existing Creditors and the New Creditors, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any collateral; (iii) anything contained in any filing or agreement to which any Creditor now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each Creditor acknowledges that (x) all other Creditors have a valid security interest in the Collateral and (y) the security interests of the Creditors in any Collateral pursuant to any outstanding Indebtedness shall be pari-passu with each other.

1.6 Each Creditor agrees not to commence any action or proceeding concerning the Indebtedness or the Collateral without providing at least one business day’s notice to all Creditors.

2. Indemnification by Existing Creditors. Existing Creditors shall indemnify, defend, and hold harmless New Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that New Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by Existing Creditors to perform under this Agreement.

2

3. Indemnification by New Creditors. New Creditors shall indemnify, defend, and hold harmless Existing Creditors against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that Existing Creditors shall incur or suffer, which arise, result from, or relate to a breach of, or failure by New Creditors to perform under this Agreement.

4. Miscellaneous.

4.1Assignment. The rights and obligations of the Creditors under this Agreement may be assigned to or assumed to a transferee of the Debentures (as defined in the Existing Creditors Securities Purchase Agreement and as defined in the New Creditors Securities Purchase Agreement), as applicable.

4.2Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, and successors.

4.3Parties in Interest. Except as expressly provided in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right to subrogation or action over against any party to this Agreement.

4.4Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties.

4.5Amendment. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties.

4.6Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

4.7Notices. Notices given under this Agreement shall be delivered as set forth in the Purchase Agreement.

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4.8Governing Law and Venue. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, and any action or proceeding, including arbitration, brought by any party in which this Agreement is a subject, shall be brought in New York County, New York.

4.9Effect of Headings. The headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

4.10Invalidity. Any provision of this Agreement which is invalid, void, or illegal, shall not affect, impair, or invalidate any other provision of this Agreement, and such other provisions of this Agreement shall remain in full force and effect.

4.11Counterparts. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. In lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original.

4.12Number and Gender. When required by the context of this Agreement, each number (singular and plural) shall include all numbers, and each gender shall include all genders.

4.13Further Assurances. Each party to this Agreement agrees to execute further instruments as may be necessary or desirable to carry out this Agreement, provided the party requesting such further action shall bear all related costs and expenses.

4.14Professional Fees and Costs. If any legal or equitable action, arbitration, or other proceeding, whether on the merits or on motion, are brought or undertaken, or an attorney retained, to enforce this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, then the successful or prevailing party or parties in such undertaking (or the party that would prevail if an action were brought) shall be entitled to recover reasonable attorney's fees and other professional fees and other costs incurred in such action, proceeding, or discussions, in addition to any other relief to which such party may be entitled. The parties intend this provision to be given the most liberal construction possible and to apply to any circumstances in which such party reasonably incurs expenses.

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[SIGNATURE PAGE CGSY INTERCREDITOR AGREEMENT]

IN WITNESS WHEREOF, this Agreement has been duly executed by the Creditors as of the day and year first written above.

CREDITORS:

Print Name: __________________________

By: ________________________________

Name:

Title:

Address for Notice:

________________________

________________________

ACKNOWLEDGED AND AGREED TO:

CAPITAL GROWTH SYSTEMS, INC.

By: ________________________________

Name:

Title:

[INSERT NAMES AND SIGNATURE BLOCKS FOR SUBSIDIARIES]

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EX-10.18 19 v132473_ex10-18.htm

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

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It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

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EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

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(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

A-5

(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

A-9

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

A-A-1

EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

A-B-1

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.18

Exhibit 10.18

INDEPENDENT CONSULTING AGREEMENT

This Independent Consulting Agreement (“Agreement”), effective as of the 1^st day of November, 2008 (“Effective Date”) is entered into by and between Capital Growth Systems, Inc., a Florida corporation (herein referred to as the “Company”), and Salzwedel Financial Communications, Inc., an Oregon corporation (herein referred to as the “Consultant”).

RECITALS:

WHEREAS, the Company is a publicly-held corporation with its common stock traded on the OTCBB;

WHEREAS, Company desires to engage the services of Consultant to represent the Company in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning such Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1.Term of Consultancy. Company hereby agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant hereby agrees to provide services to the Company commencing immediately and ending on October 30th, 2009 unless otherwise terminated earlier as provided herein.

2.Duties of Consultant. The Consultant agrees that it will generally provide the following specified consulting services through its officers and employees during the term specified in Section 1, above.

(a)Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community, establishing an image for the Company in the financial community, and creating the foundation for subsequent financial public relations efforts;

(b)Introduce the Company to the financial community, including, but not limited to, retail brokers, buy side and sell side institutional managers, portfolio managers, analysts and financial public relations professionals;

(c)With the cooperation of the Company, maintain an awareness during the term of this Agreement of the Company's plans, strategy and personnel, as they may evolve during such period, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d)Assist and consult the Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;

(e)Perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to the Consultant by the Company); reviewing press releases before they are released by the Company as well as reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such releases, reports and communications; and, at the Company’s request and subject to the Company’s securing its own rights to the use of its names, marks and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;

(f)Upon and with the Company's direction and written approval, disseminate information regarding the Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;

(g)Upon and with the Company's direction, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities, and assist the Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;

(h)At the Company's request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising the Company of the public relations implications thereof; and

(i)Otherwise perform as the Company's consultant for public relations and relations with financial professionals.

3.Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully the responsibilities which may be assigned to the Consultant from time to time by the officers and duly authorized representatives of the Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Consultant and staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, Consultant and the Company agree that Consultant will perform the duties set forth herein above in a diligent and professional manner. The parties acknowledge and agree that a disproportionately large amount of the effort to be expended and the costs to be incurred by the Consultant and the benefits to be received by the Company are expected to occur within or shortly after the first two months of the effectiveness of this Agreement. It is explicitly understood that neither the price of the Company’s common stock, nor the trading volume of the Company’s common stock hereunder measure Consultant’s performance of its duties. It is also understood that the Company is entering into this Agreement with Consultant, a corporation and not any individual member or employee thereof, and, as such, Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement.

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4.Remuneration.

4.1(a)For undertaking this engagement, for previous services rendered, and for other good and valuable consideration, the Company agrees to issue, or have issued, to the Consultant a “Commencement Bonus” of:

(i)two million (2,000,000) shares of the Company’s Common Stock (“Common Stock” and such shares, collectively, the “Shares”); and

(ii)a 5-year warrant to purchase fifteen million (15,000,000)shares of Common Stock at $0.24 per share, in the form attached as Exhibit A.

This Commencement Bonus shall be fully paid and non-assessable and stock certificates representing the Commencement Bonus shall be issued and delivered to Consultant as promptly as the Company increases its authorized common stock to permit the issuance of the Shares after giving effect to reserved shares underlying existing options, warrants and conversion rights (which in all events shall be within 180 days following the date first set forth above), it being understood and agreed that as of the date of this Agreement the Company has an obligation to reserve from its authorized but unissued common stock all remaining outstanding shares to meet its obligations to its secured lenders and others for whom options, warrants or convertible debt is outstanding. Additionally the Company agrees to pay Consultant the sum of $8000.00 cash per month due and payable on the 1st of each month of this Agreement. The issuance of the Shares and Warrant is further contingent upon the approval of the holders of subordinated debentures issued by the Company in March, 2008. Should such approval not be obtained by November 30, 2008, Consultant shall have no obligation to perform the Services called for hereunder.

(b)Consultant agrees that the Company may, in its sole discretion, cause one or more shareholders of the Company to deliver any of or all of the Shares to be issued and delivered to Consultant hereunder.

4.2The Company understands and agrees that Consultant has foregone significant opportunities to accept this engagement and that the Company derives substantial benefit from the execution of this Agreement and the ability to announce its relationship with Consultant. The Commencement Bonus, therefore, constitutes payment for Consultant’s agreement to consult to the Company and is a nonrefundable, non-apportionable, and non-ratable retainer and is not a prepayment for future services. If the Company decides to terminate this Agreement prior to October 30, 2009, for any reason whatsoever, it is agreed and understood that Consultant will not be requested or demanded by the Company to return any of the Shares paid to it as Commencement Bonus referred to in paragraph 4.1(a) hereunder. Further, if and in the event the Company is acquired during the term of this Agreement, it is agreed and understood Consultant will not be requested or demanded by the Company to return any of the Shares paid to it hereunder. Consultant agrees and understands that if during the term of this Agreement, Consultant performs substantial services for any direct competitor of the Company, then the Shares issued to Consultant hereunder will be forfeited.

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4.3[Intentionally Deleted].

4.4Company warrants that the Shares issued to Consultant under this Agreement by the Company shall be or have been validly issued, fully paid and non-assessable and that the Company’s board of directors has or shall have duly authorized the issuance and any transfer of them to Consultant.

4.5Consultant acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel and in form reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Securities Act. Consultant agrees that during the term of this Agreement, that it will not sell or transfer any of the Shares issued to it hereunder, except to the Company; nor will it pledge or assign such Shares as collateral or as security for the performance of any obligation, or for any other purpose.

4.6In connection with the acquisition of the Shares, Consultant represents and warrants to Company, to the best of its/his knowledge, as follows:

(a)Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information that the Consultant has requested.

(b)Consultant’s investment in restricted securities is reasonable in relation to the Consultant’s net worth. Consultant has had experience in investments in restricted and publicly traded securities, and Consultant has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Consultant acknowledges that an investment in the Shares is speculative and involves the risk of loss. Consultant has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Consultant can afford the risk of loss of his entire investment in the Shares. Consultant is an accredited investor, as that term is defined in Regulation D promulgated under the Securities Act.

(c)Consultant is acquiring the Shares for the Consultant’s own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.

5.[Intentionally Deleted]

6.[Intentionally Deleted]

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7.Non-Assignability of Services. Consultant’s services under this contract are offered to the Company only and may not be assigned by the Company to any entity with which the Company merges or which acquires the Company or substantially all of its assets wherein the Company becomes a minority constituent of the combined Company. In the event of such merger or acquisition, all compensation to Consultant herein under the schedules set forth herein shall remain due and payable, and any compensation received by the Consultant may be retained in the entirety by Consultant, all without any reduction or pro-rating and shall be considered and remain fully paid and non-assessable. Notwithstanding the non-assignability of Consultant’s services, the Company shall assure that in the event of any merger, acquisition, or similar change of form of entity, that its successor entity shall agree to complete all obligations to Consultant, including the provision and transfer of all compensation herein, and the preservation of the value thereof consistent with the rights granted to Consultant by the Company herein. Consultant shall not assign its rights or delegate its duties hereunder without the prior written consent of the Company.

8.Expenses. Consultant agrees to pay for all its expenses (phone, labor, etc.), other than extraordinary items (travel and entertainment required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, mass faxing to a sizable percentage of the Company's constituents, investor conference calls, print advertisements in publications, etc.) approved by the Company prior to its incurring an obligation for reimbursement. The Company agrees and understands that Consultant will not be responsible for preparing or mailing due diligence and/or investor packages on the Company, and that the Company will have some means to prepare and mail out investor packages at the Company’s expense.

9.Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to Consultant or the public by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate in all material respects and Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from Consultant's communication or dissemination of any said information, documents or materials excluding any such claims or litigation resulting from Consultant's communication or dissemination of information not provided or authorized by the Company.

10.Representations. Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant acknowledges that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Consultant further acknowledges that it is not a security Broker Dealer or a registered investment advisor. Company acknowledges that, to the best of its knowledge, that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. Company acknowledges that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.

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11.Legal Representation. Each of Company and Consultant represents that they have consulted with independent legal counsel and/or tax, financial and business advisors, to the extent that they deemed necessary.

12.Status as Independent Contractor. Consultant's engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

13.Attorney's Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled.

14.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

15.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:	Capital Growth Systems, Inc. Attention:   Patrick C. Shutt, CEO 500 West Madison Street - Suite 2060 Chicago, IL 60661 Facsimile:    (312) 673-2422 E-Mail:         PShutt@globalcapacity.com
To the Consultant:	Salzwedel Financial Communications, Inc. Attention:   Jeffrey L. Salzwedel, President 1800 SW Blankenship Road - Suite 275 West Linn, OR 97068 Facsimile:    (503) 722-7311 E-Mail:         Jeff@sfcinc.com

6

It is understood that either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this paragraph.

16.Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Oregon. The parties agree that the state or federal courts located closest to West Linn, Oregon, will be the venue of any dispute and will have jurisdiction over all parties.

17.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the alleged breach thereof, or relating to Consultant's activities or remuneration under this Agreement, shall be settled by binding arbitration in Cook County, Illinois in accordance with the applicable rules of the American Arbitration Association, Commercial Dispute Resolution Procedures, and judgment on the award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction.

18.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

	CONSULTANT:
AGREED TO:
	Salzwedel Financial Communications, Inc.
COMPANY:
Capital Growth Systems, Inc.	By:
		Jeffrey L. Salzwedel
		President and its Duly Authorized Agent
By:
Its:

8

EXHIBIT A

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

No.	Salzwedel-1	As of November __, 2008
		Chicago, Illinois

CAPITAL GROWTH SYSTEMS, INC.

FORM OF CGSI TERM NOTE WARRANT TO PURCHASE

$0.24 PER COMMON SHARE ON

Void after December 31, 2013, Unless Extended

Capital Growth Systems, Inc., a Florida corporation (the “Company”), hereby certifies that, for value received, Salzwedel Financial Communications, Inc. (including any successors and assigns, “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 PM Central time, on December 31, 2013 (the “Expiration Date”), fully paid and nonassessable shares of the Company’s $0.0001 par value Common Stock (the “Warrant Shares”) under the terms set forth herein

1.Number of Warrant Shares; Exercise Price. This Warrant shall evidence the right of the Holder to purchase up to 15,000,000 Warrant Shares (which number of Warrant Shares will remain fixed and is not subject to any adjustment except as provided in Section 5 below) at an initial exercise price per Warrant Share of $0.24 per share (the “Exercise Price”), subject to adjustment as provided in Section 5 below.

2.Definitions. As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)The term “Common Stock” shall mean the common stock, par value $0.0001 of the Company.

(b)The term “Company” shall mean Capital Growth Systems, Inc., a Florida corporation, and shall include any company which shall succeed to or assume the obligations of the Company hereunder.

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(c)The term “Corporate Transaction” shall mean (i) a sale, lease transfer or conveyance of all or substantially all of the assets of the Company; (ii) a consolidation of the Company with, or merger of the Company with or into, another corporation or other business entity in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger; or (iii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company and/or an effective change of the number of issued and outstanding shares of the Company (i.e., reverse or forward split).

3.Exercise Date; Expiration. Subject to the terms hereof, this Warrant may be exercised by the Holder at any time following the “Amendment Date,” or from time to time thereafter before the Expiration Date (the “Exercise Period”). The “Amendment Date” shall be the date following the date of this Warrant that the Company amends its articles of incorporation to authorize the issuance of not less than 600,000,000 shares of common stock.

4.Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the Holder by: (i) surrender of this Warrant, together with the Holder’s duly executed form of subscription attached hereto as Exhibit A, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the aggregate exercise price (as determined above) of the number of Warrant Shares to be purchased hereunder (with a replacement warrant to be issued as necessary to reflect the unexercised portion of this Warrant if exercised in part and not in full); or (ii) by way of cashless exercise as provided in Section 6 of this Warrant. The exercise of this Warrant pursuant to this Section 4 shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in this Section 4, and at such time the person in whose name any certificate for Warrant Shares shall be issuable upon such exercise shall be deemed to be the record holder of such Warrant Shares for all purposes. As soon as practicable after the exercise of this Warrant, the Company at its expense will cause to be issued in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Warrant Shares to which the Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current fair market value of one full Warrant Share as determined in good faith by the board of directors of the Company and as set forth in Section 7, and, if applicable, a new warrant evidencing the balance of the shares remaining subject to the Warrant.

5.Weighted Average Anti-Dilution Price Protection. The purchase price of Warrant Shares (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, as follows:

(a)“New Securities” shall mean any Common Stock or preferred stock of Company issued during the term of this Warrant, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or preferred stock (including but not limited to convertible debt or any other instrument exercisable for or convertible into Common Stock); provided, however, that “New Securities” does not include (i) any securities which are deemed to constitute an “Exempt Issuance” as that term is defined in the Securities Purchase Agreement (from October or November 2008) for the issuance of convertible debentures and warrants, the proceeds of which have been used in whole or part for the purchase of limited liability company interests of Vanco Direct USA, LLC.

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(b)In the event that Company issues New Securities for a consideration of less than $0.24 per share of Common Stock (on an as converted to Common Stock basis, as adjusted per this Section 5 hereof) (the “Original Purchase Price”), or if the Original Purchase Price shall have been adjusted hereunder, and the Company issues New Securities for a purchase price below the adjusted Purchase Price, then the then-current Purchase Price shall be adjusted downward to a price determined by dividing

(i)the sum of (w) the Purchase Price in effect before the issuance of such New Securities multiplied by the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of Company preferred stock then issued as converted into shares of Common Stock (including shares of common stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (x) the consideration, if any, received by or deemed to have been received by the Company on the issue of such New Securities by:

(ii)the sum of (y) the number of shares of the Company’s Common Stock then issued and outstanding plus the number of shares of the Company’s preferred stock then issued as converted into shares of Common Stock (including shares of Common Stock reserved pursuant to the issued Offering Warrants) immediately prior to the issuance of such New Securities and (z) the number of Additional Shares of Common Stock issued or deemed to have been issued in the issuance of such New Securities.

(c)In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid.

(d)In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company’s board of directors consistent with its fiduciary duties irrespective of any accounting treatment.

(e)The Company will not by reorganization, transfer of assets, consolidation, merger, dissolution, or otherwise, avoid or seek to avoid observance or performance of any of the terms of this Section 5, but will at all times in good faith assist in the carrying out and performance of all provisions of this Section 5 in order to protect the rights of the Holder against impairment.

6.Adjustments to Number of Warrants and Conversion Price. The number and kind of Warrant Shares or any shares of stock or other securities which may be issuable upon the exercise of this Warrant and the exercise price hereunder shall be subject to adjustment from time to time upon the happening of certain events, as follows:

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(a)Splits and Subdivisions. In the event the Company should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock, with the entitlement for the holder thereof to receive directly or indirectly, additional shares of Common Stock, hereinafter referred to as the “Common Stock Equivalents”) without payment of any consideration by such Holder for the additional shares of Common Stock or the Common Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately increased in proportion to such increase of outstanding shares.

(b)Combination of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be appropriately increased and the number of Warrant Shares for which this Warrant is exercisable shall be appropriately decreased in proportion to such decrease in outstanding shares.

(c)Reclassification or Reorganization. If the Warrant Shares issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a split, subdivision or stock dividend provided for in Section 6(a) above or a combination of shares provided for in Section 6(b) above, or a reorganization, merger or consolidation provided for in Section 6(d) below, then and in each such event the Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein.

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(d)Merger or Consolidation. If at any time or from time to time there shall be a capital reclassification or reorganization of the Warrant Shares or a Corporate Transaction (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) of the Company, then as a part of such reorganization or Corporate Transaction, adequate provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this Warrant, the number of shares of stock or other securities or property of the Company, resulting from such reorganization, recapitalization or Corporate Transaction to which a holder of the number of Warrant Shares issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization or Corporate Transaction. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 6(d) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such Corporate Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Corporate Transaction or the corporation purchasing or acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph 6(d) shall similarly apply to successive reorganizations, reclassifications, or Corporate Transactions. Notwithstanding anything to the contrary contained herein, in the event at least 30 days prior to the closing of the reorganization or Corporate Transaction the Company receives the written consent from holders of “Offering Warrants” (as defined below) outstanding which represent the right to purchase fifty-one percent (51%) of the shares of Common Stock purchasable under the Offering Warrants (the “Offering Warrant Majority”) that all Offering Warrants shall be cancelled effective as of the closing of the reorganization or Corporate Transaction, then provided the Company provides notice to the Holder of this Warrant at least 20 days prior to the closing of such reorganization or Corporate Transaction of such approval, then effective upon the closing of such reorganization or Corporate Transaction, this Warrant shall be cancelled. For purposes hereof, the term “Offering Warrants” shall mean all of the outstanding warrants that were issued to any of the following persons or entities (or their designees) by the Company in November, 2008 in connection with the transactions associated with the proposed purchase of 100% of the limited liability company interests of Vanco Direct USA, LLC: (i) the purchasers of subordinated convertible debentures; (ii) Aequitas Capital Management, Inc.; (iii) Salzwedel Financial Communications, Inc. and (iv) Capstone Investments, Inc.

(e)Notice of Record Dates; Adjustments. The Company shall promptly notify the Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of Warrant Shares issuable upon the exercise of this Warrant. Such Notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based, as well as whether this Warrant will be cancelable as specified above.

7.Registration Rights and Cashless Exercise. The Company shall have the obligation to file a piggyback registration statement with respect to the shares underlying this Warrant with respect to any subsequent registration statement filed by the Company, subject to the caveats that: (i) no registration obligation shall exist to the extent that the shares underlying this Warrant if purchased by cashless exercise, would be eligible for resale pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (or the functional equivalent of such Rule), or (ii) should the investor(s) requiring such registration statement prohibit the registration of the shares underlying this Warrant, then in such event the shares underlying this Warrant shall not be subject to the requirement that they be registered and provided further that should the SEC require as a condition to the declaration of effectiveness of such registration statement that the number of shares registrable in such registration statement be less than the full amount sought for such registration statement, then priority for registration shall be given first to the Investors’ shares subject to the registration statement and next pro rata to the shares represented by this Warrant and any other shares subject to piggyback registration rights with the Company (pro rata if not all of such shares can be registered). Should the Company elect to file a registration statement covering some or all of the shares underlying this Warrant, the Holder of this Warrant as a condition to such registration shall provide such information as is necessary to effect a registration of the shares. In all events, Holder shall have the right to effect a cashless exercise of the shares subject to this Warrant pursuant to the following process.

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(a)Upon execution of the cashless exercise of the shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of fully paid and nonassessable Warrant Shares computed using the following formula:

X =	Y (A – B)
	A

Where:	X =	the number of shares of Warrant Shares to be delivered to the Holder;
	Y =	the number of Converted Warrant Shares;
	A =	the fair market value of one Warrant Share on the Conversion Date (as defined below); and
	B =	the Exercise Price (as adjusted to the Conversion Date).

(b)No fractional shares shall be issuable upon cashless exercise of the Warrant, and if the number of shares to be issued, determined in accordance with the foregoing formula, is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as defined below).

(i)Method of Exercise. The Holder may execute the cashless exercise by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to execute a cashless exercise and indicating the total number of shares under this Warrant that the Holder is exercising through the cashless exercise. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”). Certificates for the shares issuable upon execution of the cashless exercise shall be delivered to the Holder within three business days following the Conversion Date.

(ii)Determination of Fair Market Value. For purposes of this Section 6, fair market value of a Warrant Share on the Conversion Date shall be determined as follows:

(1)If the Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a similar national quotation system), the fair market value of a Warrant Share shall be deemed to be the average of the closing selling prices of the Common Stock on the stock exchange or system determined by the Board to be the primary market for the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are officially quoted in the composite tape of transactions on such exchange or system;

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(2)If the Common Stock is traded over-the-counter, the fair market value of a Warrant Share shall be deemed to be the average of the closing bid prices (or, if such information is available, the closing selling prices) of the Common Stock over the ten (10) trading day period ending on the date prior to the Conversion Date, as such prices are reported by the National Association of Securities Dealers through its NASDAQ system or any successor system; and

(3)If there is no public market for the Common Stock, then the fair market value of a Warrant Share shall be determined by the board of directors of the Company in good faith, and, upon request of the Holder, the Board (or a representative thereof) shall, as promptly as reasonably practicable but in any event not later than 15 days after such request, notify the Holder of the Fair Market Value per share of Common Stock.

Notwithstanding anything to the contrary contained herein, at any time following the date of the issuance of this Warrant, if the Holder hereof would be eligible for the resale of all of the shares of Common Stock purchasable by way of the cashless exercise rights hereunder pursuant to Rule 144, then the piggyback registration rights contained herein shall lapse as of that date.

8.Replacement of Warrant. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the Holder, in lieu thereof, a new Warrant of like tenor.

9.No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder as a stockholder of the Company.

10.No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant but will at all times carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment, subject to any amendment or waiver as permitted pursuant to Section 10(e).

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11.Miscellaneous.

(a)Transfer of Warrant. The Holder agrees not to make any disposition of this Warrant, the Warrant Shares or any rights hereunder without the prior written consent of the Company. Any such permitted transfer must be made by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such permitted transferee. As a condition precedent to such transfer, the transferee shall sign an investment letter in form and substance satisfactory to the Company. Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of and be binding upon any successor to the Company and shall extend to any holder hereof.

(b)Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.

(c)Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Warrant shall be in writing and shall be effective and deemed delivered to such party under this Warrant on the earliest of the following: (a) the date of personal delivery; (b) two (2) business days after transmission by facsimile, addressed to the other party at its facsimile number, with confirmation of transmission; (c) four (4) business days after deposit with a return receipt express courier for United States deliveries; or (d) five (5) business days after deposit in the United States mail by registered or certified mail (return receipt requested) for United States deliveries. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to such party at the address set forth on the signature page hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto. Notices to the Company will be marked “Attention: Chief Financial Officer.”

(d)Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

(e)Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Holder and the Company. Any amendment or waiver effected in accordance with this Section 10(e) shall be binding upon the Holder of this Warrant (and of any securities into which this Warrant is convertible), each future holder of all such securities, and the Company.

(f)Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

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(g)Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois, without giving effect to its conflicts of laws principles.

(h)Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first written above.

CAPITAL GROWTH SYSTEMS, INC.
By:
Name:
Title:
HOLDER NAME:		Salzwedel Financial Communications, Inc.
Address:	1800 West Blankenship Road - Suite 275
	West Linn, Oregon 97068

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EXHIBIT A

FORM OF SUBSCRIPTION OF $0.24 WARRANT

(To be signed only on exercise of Warrant)

To: CAPITAL GROWTH SYSTEMS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase: (i) for cash _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant; or (ii) purchase pursuant to the cashless exercise option contained in the Warrant a total of __________ shares of Common Stock covered by the Warrant, after giving effect to cancellation of _______shares of Common Stock covered by the Warrant due to the cashless exercise provisions of the Warrant.

Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

Dated:
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	(Print Name)

Address:

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EXHIBIT B

FORM OF ASSIGNMENT OF $0.50 WARRANT

(To assign the foregoing Warrant, execute this form and supply

required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:
		(Please Print)
Address:
		(Street)
	(City)	(State)	(Zip Code)
Date:
Holder’s Signature:
Holder’s Address:
		(Street)
	(City)	(State)	(Zip Code)

NOTE: The signature to this Form of Assignment must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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