Exhibit 10.1      SECURITIES PURCHASE AGREEMENT   LV ADMINISTRATIVE SERVICES,
INC., as Administrative and Collateral Agent   THE PURCHASERS From Time to Time
Party Hereto   and   ELEC COMMUNICATIONS CORP.   Dated: September 28, 2007

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TABLE OF CONTENTS               Page      1.    Agreement to Sell and Purchase 
  1    2.    Fees and Warrant    1    3.    Closing, Delivery and Payment    2 
    3.1    Closing    2      3.2    Delivery    2    4.    Representations and
Warranties of the Company    2      4.1    Organization, Good Standing and
Qualification    2      4.2    Subsidiaries    3      4.3    Capitalization;
Voting Rights    4      4.4    Authorization; Binding Obligations    5      4.5 
  Liabilities; Solvency    5      4.6    Agreements; Action    6      4.7   
Obligations to Related Parties    7      4.8    Changes    8      4.9    Title
to Properties and Assets; Liens, Etc    9      4.10    Intellectual Property   
10      4.11    Compliance with Other Instruments    11      4.12    Litigation 
  11      4.13    Tax Returns and Payments    11      4.14    Employees    12   
  4.15    Registration Rights and Voting Rights    12      4.16    Compliance
with Laws; Permits    13      4.17    Environmental and Safety Laws    13     
4.18    Valid Offering    14      4.19    Full Disclosure    14      4.20   
Insurance    14      4.21    SEC Reports    14      4.22    Listing    15     
4.23    No Integrated Offering    15      4.24    Stop Transfer    15      4.25 
  Dilution    15      4.26    Patriot Act    15      4.27    ERISA    16    5. 
  Representations and Warranties of each Purchaser    16      5.1    No
Shorting    16      5.2    Requisite Power and Authority    16      5.3   
Investment Representations    17      5.4    The Purchaser Bears Economic Risk 
  17      5.5    Acquisition for Own Account    17      5.6    The Purchaser Can
Protect Its Interest    17      5.7    Accredited Investor    17      i

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TABLE OF CONTENTS               Page        5.8    Legends    18    6.   
Covenants of the Company    18      6.1    Stop-Orders    19      6.2   
Listing    19      6.3    Market Regulations    19      6.4    Reporting
Requirements    19      6.5    Use of Funds    20      6.6    Access to
Facilities    21      6.7    Taxes    21      6.8    Insurance    23      6.9   
Intellectual Property    24      6.10    Properties    25      6.11   
Confidentiality    25      6.12    Required Approvals    26      6.13   
Reissuance of Securities    28      6.14    Opinion    28      6.15    Margin
Stock    28      6.16    FIRPTA    29      6.17    Restricted Cash Disclosure   
29      6.18    No Restrictions on Additional Financing    29      6.19   
Authorization and Reservation of Shares    29      6.20    Investor
Relations/Public Relations    29      6.21    Board Observation Rights    29   
7.    Covenants of the Purchasers    30      7.1    Confidentiality    30     
7.2    Non-Public Information    30      7.3    Limitation on Acquisition of
Common Stock of the Company    30    8.    Covenants of the Company and the
Purchasers Regarding Indemnification    31      8.1    Company Indemnification 
  31      8.2    Purchaser Indemnification    31    9.    Exercise of Warrant   
31      9.1    Mechanics of Exercise    31    10.    Registration Rights    33 
    10.1    Offering Restrictions    33    11.    Miscellaneous    33      11.1 
  Governing Law, Jurisdiction and Waiver of Jury Trial    33      11.2   
Severability    34      11.3    Survival    35      11.4    Successors    35   
  11.5    Entire Agreement; Maximum Interest    36      ii

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TABLE OF CONTENTS           Page    11.6    Amendment and Waiver    36  11.7   
Delays or Omissions    36  11.8    Notices    36  11.9    Attorneys’ Fees    37 
11.10    Titles and Subtitles    38  11.11    Facsimile Signatures;
Counterparts    38  11.12    Broker’s Fees    38  11.13    Construction    38 
11.14    Agency    38      iii

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LIST OF EXHIBITS   Form of Term Note        Exhibit A  Form of Warrant       
Exhibit B  Form of Opinion        Exhibit C  Form of Escrow Agreement       
Exhibit D    LIST OF SCHEDULES   Schedule    1                       Purchaser
Commitments      Schedule    2                       Warrant Holders and Warrant
Shares      Schedule    4.2                       Subsidiaries      Schedule   
4.3                       Capitalization      Schedule    4.6                   
   Extraordinary Agreements      Schedule    4.7                     
 Obligations to Related Parties      Schedule    4.9                       Title
to Properties; Liens      Schedule    4.10                       IP
Registration      Schedule    4.12                       Litigation     
Schedule    4.13                       Taxes      Schedule    4.14             
         Employees      Schedule    4.15                       Registration and
Voting Rights      Schedule    4.21                       SEC Reports     
Schedule    6.12(e)                       Indebtedness      Schedule    11.12   
                   Brokers          iv

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SECURITIES PURCHASE AGREEMENT             THIS SECURITIES PURCHASE AGREEMENT
(this “Agreement”) is made and  entered into as of September 28, 2007, among
ELEC COMMUNICATIONS CORP., a New  York corporation (the “Company”), the
purchasers from time to time a party hereto (each a  “Purchaser” and
collectively, the “Purchasers”) and LV ADMINISTRATIVE SERVICES, INC.,  a
Delaware corporation, as administrative and collateral agent for each Purchaser
(the “Agent”),  and together with the Purchasers, the “Creditor Parties”).   
RECITALS             WHEREAS, the Company has authorized the sale to each
Purchaser of a Secured Term  Note in the form of Exhibit A hereto in the
principal amount set forth opposite such Purchaser’s  name on Schedule 1 hereto
(each as amended, restated, modified and/or supplemented from time  to time, a
“Note” and, collectively, the “Notes”);              WHEREAS, the Company wishes
to issue to each Purchaser warrants in the form of  Exhibit B hereto (each as
amended, restated, modified and/or supplemented from time to time, a  “Warrant”
and, collectively the “Warrants”) to purchase up to the number of shares of the 
Company’s common stock, $0.10 par value per share (the “Common Stock”), set
forth opposite  such Purchaser’s name on Schedule 2 (subject to adjustment as
set forth therein) in connection  with such Purchaser’s purchase of the
applicable Note;              WHEREAS, each Purchaser desires to purchase the
applicable Note and Warrant on the  terms and conditions set forth herein; and 
            WHEREAS, the Company desires to issue and sell the applicable Note
and Warrant to  each Purchaser on the terms and conditions set forth herein.   
AGREEMENT             NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual promises,  representations, warranties and covenants hereinafter
set forth and for other good and valuable  consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto  agree as
follows:              1.       Agreement to Sell and Purchase. Pursuant to the
terms and conditions set forth in  this Agreement, on the Closing Date (as
defined in Section 3), the Company shall sell to each  Purchaser, and each
Purchaser shall purchase from the Company, the applicable Note in the  principal
amount set forth opposite such Purchaser’s name on Schedule 1 hereto. The sale
of the  Notes on the Closing Date shall be known as the “Offering.” The Notes
will mature on the  Maturity Date (as defined in the Notes). Collectively, the
Notes and Warrants and Common  Stock issuable upon exercise of the Warrants are
referred to as the “Securities.”              2.       Fees and Warrant. On the
Closing Date: 

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                              (a)      The Company will issue and deliver to
each Purchaser a Warrant            to purchase up to the number of shares of
Common Stock set forth opposite its name on            Schedule 2 (subject to
adjustment as set forth therein) in connection with the Offering           
pursuant to Section 1 hereof.  All the representations, covenants, warranties, 
          undertakings, and indemnifications, and other rights made or granted
to or for the benefit            of each Creditor Party by the Company are
hereby also made and granted for the benefit            of the holder of the
related Warrant and shares of the Common Stock issuable upon            exercise
of such Warrant (the “Warrant Shares”).                                   
(b)      Subject to the terms of Section 2(c) below, the Company shall pay     
      (i) to Valens Capital Management, LLC, the investment manager of the
Purchasers            (“VCM”), a non-refundable payment in an amount equal to
$46,000; (ii) to Laurus            Capital Management, LLC, the investment
manager of the Purchasers (“LCM”), a non-            refundable payment in an
amount equal to $119,000; (iii) to the Purchasers, a non-            refundable
payment in an amount equal to $6,000; and (iii) to the Purchasers, an advance   
        prepayment discount deposit equal to $6,000. Each of the foregoing
payments shall be            deemed fully earned on the Closing Date and shall
not be subject to rebate or proration            for any reason.               
                        (c)      The payments and the expenses referred to in
the preceding clause            (b) (net of deposits previously paid by the
Company) shall be paid at closing out of funds            held pursuant to the
Escrow Agreement (as defined below) and a disbursement letter (the  
          “Disbursement Letter”).             3.       Closing, Delivery and
Payment.                          3.1    Closing. Subject to the terms and
conditions herein, the closing of the            transactions contemplated
hereby (the “Closing”), shall take place on the date hereof, at such           
time or place as the Company and the Agent may mutually agree (such date is
hereinafter            referred to as the “Closing Date”).                     
      3.2    Delivery. Pursuant to the Escrow Agreement, at the Closing on the 
          Closing Date, the Company will deliver to each Purchaser, among other
things, the applicable            Note and Warrant and such Purchaser will
deliver to the Company, among other things, the            amounts set forth
opposite its name in the Disbursement Letter by certified funds or wire
transfer            (it being understood that $2,664,035.38 of the proceeds of
the Note shall be placed in the            Restricted Account (as defined in the
Restricted Account Agreement referred to below. The            Company hereby
acknowledges and agrees that each Purchaser’s obligation to purchase the       
    applicable Note from the Company on the Closing Date shall be contingent
upon the satisfaction            (or waiver by the Agent in its sole discretion)
of the items and matters set forth in the closing            checklist provided
by the Agent to the Company on or prior to the Closing Date.             
4.       Representations and Warranties of the Company.  The Company hereby     
      represents and warrants to each Creditor Party as follows:               
          4.1  Organization, Good Standing and Qualification. The Company and
each            of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be,      2

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duly organized, validly existing and in good standing under the laws of its
jurisdiction of  organization. The Company and each of its Subsidiaries has the
corporate, limited liability  company or partnership, as the case may be, power
and authority to own and operate its  properties and assets and, insofar as it
is or shall be a party thereto, to (1) execute and deliver (i)  this Agreement,
(ii) the Notes and the Warrants to be issued in connection with this Agreement, 
(iii) the Master Security Agreement dated as of the date hereof among the
Company, certain  Subsidiaries of the Company and the Agent (as amended,
restated, modified and/or  supplemented from time to time, the “Master Security
Agreement”), (iv) the Subsidiary Guaranty  dated as of the date hereof made by
certain Subsidiaries of the Company (as amended, restated,  modified and/or
supplemented from time to time, the “Subsidiary Guaranty”), (v) the Stock 
Pledge Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the  Company and the Purchaser (as amended, restated, modified
and/or or supplemented from time  to time, the “Stock Pledge Agreement”), (vi)
the Funds Escrow Agreement dated as of the date  hereof among the Company, the
Purchasers and the escrow agent referred to therein,  substantially in the form
of Exhibit D hereto (as amended, restated, modified and/or  supplemented from
time to time, the “Escrow Agreement”), (vii) the Restricted Account  Agreement
dated as of the date hereof among the Company, the Agent and North Fork Bank
(as  amended, modified or supplemented from time to time, the “Restricted
Account Agreement”),  (vi) the Restricted Account Side Letter related to the
Restricted Account Agreement dated as of  the date hereof between the Company
and the Agent (as amended, modified or supplemented  from time to time, the
“Restricted Account Side Letter”), (viii) all other documents, instruments  and
agreements entered into in connection with the transactions contemplated hereby
and thereby  (the preceding clauses (ii) through (viii), collectively, the
“Related Agreements”); (2) issue and  sell the Notes; (3) issue and sell the
Warrants and the Warrant Shares; and (4) carry out the  provisions of this
Agreement and the Related Agreements and to carry on its business as  presently
conducted. Each of the Company and each of its Subsidiaries is duly qualified
and is  authorized to do business and is in good standing as a foreign
corporation, partnership or limited  liability company, as the case may be, in
all jurisdictions in which the nature or location of its  activities and of its
properties (both owned and leased) makes such qualification necessary,  except
for those jurisdictions in which failure to do so has not, or could not
reasonably be  expected to have, individually or in the aggregate, a material
adverse effect on the business,  assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the  Company and its
Subsidiaries, taken individually and as a whole (a “Material Adverse Effect”). 
                      4.2    Subsidiaries. Each direct and indirect Subsidiary
of the Company, the  direct owner of such Subsidiary and its percentage
ownership thereof, is set forth on Schedule  4.2. For the purpose of this
Agreement, a “Subsidiary” of any person or entity means (i) a  corporation or
other entity whose shares of stock or other ownership interests having ordinary 
voting power (other than stock or other ownership interests having such power
only by reason of  the happening of a contingency) to elect a majority of the
directors of such corporation, or other  persons or entities performing similar
functions for such person or entity, are owned, directly or  indirectly, by such
person or entity or (ii) a corporation or other entity in which such person or 
entity owns, directly or indirectly, more than 50% of the equity interests at
such time; provided  that, for so long as each of AVI Holding Corp., a Texas
corporation (“AVI Holdings”), Line  One, Inc., a New York corporation (“Line
One”) and TelcoSoftware.com Corp., a Delaware  corporation (“TelcoSoftware” and
together with AVI Holdings and Line One, the “Inactive  Subsidiaries” and each,
an “Inactive Subsidiary”) hold no significant assets or liabilities (other     
3

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than in respect of AVI Holdings, capitalized lease obligations not to exceed
$35,000, and in  respect of Line One, liabilities not to exceed $50,000) and do
not engage in any business  activities, the defined term “Subsidiary” as used in
this Agreement and the Related Agreements  shall not include such Inactive
Subsidiary; provided, further, that if any Inactive Subsidiary shall  at any
time after the date hereof hold significant assets or liabilities or engage in
any business  activities, such Inactive Subsidiary shall thereafter be deemed a
Subsidiary hereunder and shall  otherwise be subject to all terms, agreements,
representations, warranties and covenants  otherwise applicable to Subsidiaries
under this Agreement and the Related Agreements and (y)  an “Issuer Party”
means, the Company and each direct or indirect Subsidiary of the Company to  the
extent party to the Master Security Agreement, the Subsidiary Guaranty, the
Stock Pledge  Agreement and such other security documentation required by the
Creditor Parties to grant to the  Agent, for the ratable benefit of the Creditor
Parties, a first priority perfected security interest in  substantially all of
such Subsidiary’s assets to secure the Obligations (as defined in the Master 
Security Agreement).                          4.3     Capitalization; Voting
Rights.                                  (a)      The authorized capital stock
of the Company, as of the date hereof            consists of 51,000,000 shares,
of which 50,000,000 are shares of Common Stock, par            value $0.10 per
share, 25,768,791 shares of which are issued and outstanding, and           
1,000,000 are shares of preferred stock, par value $0.10 per share of which none
of the            shares of preferred stock are issued and outstanding. The
authorized, issued and            outstanding capital stock of each Subsidiary
of the Company is set forth on Schedule 4.3.                                 
(b)      Except as disclosed on Schedule 4.3, other than: (i) the shares       
    reserved for issuance under the Company’s stock option plans; and (ii)
shares which may            be granted pursuant to this Agreement and the
Related Agreements, there are no            outstanding options, warrants,
rights (including conversion or preemptive rights and            rights of first
refusal), proxy or stockholder agreements, or arrangements or agreements       
    of any kind for the purchase or acquisition from the Company of any of its
securities.            Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of any of the            Notes or the Warrants, or the issuance
of any of the Warrant Shares, nor the            consummation of any transaction
contemplated hereby will result in a change in the price            or number of
any securities of the Company outstanding, under anti-dilution or other         
  similar provisions contained in or affecting any such securities.             
                    (c)      All issued and outstanding shares of the Company’s
Common            Stock: (i) have been duly authorized and validly issued and
are fully paid and non-            assessable; and (ii) were issued in
compliance with all applicable state and federal laws            concerning the
issuance of securities.                                  (d)      The rights,
preferences, privileges and restrictions of the shares of            the Common
Stock are as stated in the Company’s Certificate of Incorporation (the         
  “Charter”). Those Warrant Shares to be obtained upon the exercise of Warrant
A-1 and            B-1 (as more fully described on Schedule II hereof) have been
duly and validly reserved            for issuance. Upon completion of the
requirements set forth in Section 6.22, the balance            of the Warrant
Shares will have been duly and validly reserved for issuance. When      4

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          issued in compliance with the provisions of this Agreement and the
Company’s Charter,            the Securities will be validly issued, fully paid
and non-assessable, and will be free of any            liens or encumbrances;
provided, however, that the Securities may be subject to            restrictions
on transfer under state and/or federal securities laws as set forth herein or
as            otherwise required by such laws at the time a transfer is
proposed.                        4.4     Authorization; Binding Obligations. All
corporate, partnership or limited  liability company, as the case may be, action
on the part of the Company and each of its  Subsidiaries (including their
respective officers and directors) necessary for the authorization of  this
Agreement and the Related Agreements, the performance of all obligations of the
Company  and its Subsidiaries hereunder and under the other Related Agreements
at the Closing and, the  authorization, sale, issuance and delivery of the Notes
and Warrants has been taken or will be  taken prior to the Closing. This
Agreement and the Related Agreements, when executed and  delivered and to the
extent it is a party thereto, will be valid and binding obligations of the 
Company and each of its Subsidiaries, enforceable against each such person or
entity in  accordance with their terms, except:                                 
(a)      as limited by applicable bankruptcy, insolvency, reorganization,       
    moratorium or other laws of general application affecting enforcement of
creditors’            rights; and                                      (b)    
 general principles of equity that restrict the availability of equitable       
    or legal remedies.      The sale of the Notes is not and will not be subject
to any preemptive rights or rights of first  refusal that have not been properly
waived or complied with. The issuance of the Warrants and  the subsequent
exercise of the Warrants for Warrant Shares are not and will not be subject to
any  preemptive rights or rights of first refusal that have not been properly
waived or complied with.                        4.5     Liabilities; Solvency. 
                                (a)      Neither the Company nor any of its
Subsidiaries has any liabilities,            except current liabilities incurred
in the ordinary course of business and liabilities            disclosed in any
of the Company’s filings under the Securities Exchange Act of 1934           
(“Exchange Act”) made prior to the date of this Agreement (collectively, the
“Exchange            Act Filings”), copies of which have been provided to the
Agent.                                  (b)      Both before and after giving
effect to (a) the transactions            contemplated hereby that are to be
consummated on the Closing Date, (b) the            disbursement of the proceeds
of, or the assumption of the liability in respect of, the Notes           
pursuant to the instructions or agreement of the Company and (c) the payment
and            accrual of all transaction costs in connection with the
foregoing, the Company and each            Subsidiary of the Company, is and
will be, Solvent. For purposes of this Section 4.5(b),            “Solvent”
means, with respect to any Person (as hereinafter defined) on a particular
date,            that on such date (a) the fair value of the property of such
Person is greater than the total            amount of liabilities, including
contingent liabilities, of such Person; (b) the present fair            salable
value of the  assets of such Person is not less than the amount that will be
required      5

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          to pay the probable liability of such Person on its debts as they
become absolute and            matured; (c) such Person does not intend to, and
does not believe that it will, incur debts            or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and            (d)
such Person is not engaged in a business or transaction, and is not about to
engage in            a business or transaction, for which such Person’s property
would constitute and            unreasonably small capital. The amount of
contingent liabilities (such as litigation,            guaranties and pension
plan liabilities) at any time shall be computed as the amount that,           
in light of all the facts and circumstances existing at the time, represents the
amount that            can reasonably be expected to become an actual or matured
liability.                        4.6      Agreements; Action. Except as set
forth on Schedule 4.6 or as disclosed  in any Exchange Act Filings:             
                    (a)      there are no agreements, understandings,
instruments, contracts,            proposed transactions, judgments, orders,
writs or decrees to which the Company or any            of its Subsidiaries is a
party or by which it is bound which may involve: (i) obligations           
(contingent or otherwise) of, or payments to, the Company or any of its
Subsidiaries in            excess of $50,000 (other than obligations of, or
payments to, the Company or any of its            Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course            of
business); or (ii) the transfer or license of any patent, copyright, trade
secret or other            proprietary right to or from the Company or any of
its Subsidiaries (other than licenses            arising from the purchase of
“off the shelf” or other standard products); or (iii) provisions           
restricting the development, manufacture or distribution of the Company’s or any
of its            Subsidiaries products or services; or (iv) indemnification by
the Company or any of its            Subsidiaries with respect to infringements
of proprietary rights.                                  (b)      Since November
30, 2006 (the “Balance Sheet Date”), neither the            Company nor any of
its Subsidiaries has: (i) declared or paid any dividends, or           
authorized or made any distribution upon or with respect to any class or series
of its            capital stock; (ii) incurred any indebtedness for money
borrowed or any other liabilities            (other than ordinary course
obligations) individually in excess of $50,000 or, in the case            of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in            the aggregate; (iii) made any loans or advances to any
person or entity not in excess,            individually or in the aggregate, of
$100,000, other than ordinary course advances for            travel expenses; or
(iv) sold, exchanged or otherwise disposed of any of its assets or           
rights, other than the sale of its inventory in the ordinary course of
business.                                  (c)      For the purposes of
subsections (a) and (b) above, all indebtedness,            liabilities,
agreements, understandings, instruments, contracts and proposed transactions   
        involving the same person or entity (including persons or entities the
Company or any            Subsidiary of the Company has reason to believe are
affiliated therewith) shall be            aggregated for the purpose of meeting
the individual minimum dollar amounts of such            subsections.           
                        (d)      The Company maintains disclosure controls and
procedures            (“Disclosure Controls”) designed to ensure that
information required to be disclosed by            the Company in the reports
that it files or submits under the Exchange Act is recorded,      6

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          processed, summarized, and reported, within the time periods specified
in the rules and            forms of the Securities and Exchange Commission
(“SEC”).                                  (e)      The Company makes and keeps
books, records, and accounts, that,            in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the            Company’s
assets. The Company maintains internal control over financial reporting         
  (“Financial Reporting Controls”) designed by, or under the supervision of,
the            Company’s principal executive and principal financial officers,
and effected by the            Company’s board of directors, management, and
other personnel, to provide reasonable            assurance regarding the
reliability of financial reporting and the preparation of financial           
statements for external purposes in accordance with generally accepted
accounting            principles (“GAAP”), including that:                     
                      (i)  transactions are executed in accordance with
management’s                      general or specific authorization;           
                                (ii)  unauthorized acquisition, use, or
disposition of the                      Company’s assets that could have a
material effect on the financial statements are                      prevented
or timely detected;                                            (iii) 
transactions are recorded as necessary to permit preparation                   
  of financial statements in accordance with GAAP, and that the Company’s       
              receipts and expenditures are being made only in accordance with
authorizations                      of the Company’s management and board of
directors;                                            (iv)  transactions are
recorded as necessary to maintain                      accountability for
assets; and                                            (v)  the recorded
accountability for assets is compared with the                      existing
assets at reasonable intervals, and appropriate action is taken with respect   
                  to any differences.                                   
(f)      There is no weakness in any of the Company’s Disclosure Controls       
    or Financial Reporting Controls that is required to be disclosed in any of
the Exchange            Act Filings, except as so disclosed.                   
    4.7     Obligations to Related Parties. Except as set forth on Schedule 4.7,
there  are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders  or employees of the Company or any of its Subsidiaries
other than:                                  (a)      for payment of salary for
services rendered and for bonus            payments;                           
            (b)      reimbursement for reasonable expenses incurred on behalf of
the            Company and its Subsidiaries;                                 
(c)      for other standard employee benefits made generally available to       
    all employees (including stock option agreements outstanding under any stock
option      7

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          plan approved by the Board of Directors of the Company and each
Subsidiary of the            Company, as applicable); and                       
          (d)      obligations listed in the Company’s and each of its
Subsidiary’s            financial statements or disclosed in any of the
Company’s Exchange Act Filings.    Except as described above or set forth on
Schedule 4.7, none of the officers, directors or, to the  best of the Company’s
knowledge, key employees or stockholders of the Company or any of its 
Subsidiaries or any members of their immediate families, are indebted to the
Company or any of  its Subsidiaries, individually or in the aggregate, in excess
of $50,000 or have any direct or  indirect ownership interest in any firm or
corporation with which the Company or any of its  Subsidiaries is affiliated or
with which the Company or any of its Subsidiaries has a business  relationship,
or any firm or corporation which competes with the Company or any of its 
Subsidiaries, other than passive investments in publicly traded companies
(representing less than  one percent (1%) of such company) which may compete
with the Company or any of its  Subsidiaries. Except as described above, no
officer, director or stockholder of the Company or  any of its Subsidiaries, or
any member of their immediate families, is, directly or indirectly,  interested
in any material contract with the Company or any of its Subsidiaries and no 
agreements, understandings or proposed transactions are contemplated between the
Company or  any of its Subsidiaries and any such person. Except as set forth on
Schedule 4.7, neither the  Company nor any of its Subsidiaries is a guarantor or
indemnitor of any indebtedness of any  other person or entity.                 
        4.8     Changes. Since the Balance Sheet Date, except as disclosed in
any  Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements,  there has not been:                                     
(a)      any change in the business, assets, liabilities, condition (financial 
          or otherwise), properties, operations or prospects of the Company or
any of its            Subsidiaries, which individually or in the aggregate has
had, or could reasonably be            expected to have, individually or in the
aggregate, a Material Adverse Effect;                                  (b)     
any resignation or termination of any officer, key employee or            group
of employees of the Company or any of its Subsidiaries;                         
        (c)      any material change, except in the ordinary course of business,
in            the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty,            endorsement, indemnity, warranty or
otherwise;                                  (d)      any damage, destruction or
loss, whether or not covered by            insurance, which has had, or could
reasonably be expected to have, individually or in the            aggregate, a
Material Adverse Effect;                                  (e)      any waiver by
the Company or any of its Subsidiaries of a valuable            right or of a
material debt owed to it;      8

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                              (f)      any direct or indirect loans made by the
Company or any of its            Subsidiaries to any stockholder, employee,
officer or director of the Company or any of            its Subsidiaries, other
than advances made in the ordinary course of business;                         
        (g)      any material change in any compensation arrangement or         
  agreement with any employee, officer, director or stockholder of the Company
or any of            its Subsidiaries;                                   
(h)      any declaration or payment of any dividend or other distribution of   
        the assets of the Company or any of its Subsidiaries;                   
              (i)      any labor organization activity related to the Company or
any of its            Subsidiaries;                                    (j)     
any debt, obligation or liability incurred, assumed or guaranteed by           
the Company or any of its Subsidiaries, except those for immaterial amounts and
for            current liabilities incurred in the ordinary course of business; 
                                (k)      any sale, assignment, transfer,
abandonment or other disposition of            any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the           
Company or any of its Subsidiaries;                                  (l)     
any change in any material agreement to which the Company or            any of
its Subsidiaries is a party or by which either the Company or any of its       
    Subsidiaries is bound which either individually or in the aggregate has had,
or could            reasonably be expected to have, individually or in the
aggregate, a Material Adverse            Effect;                               
      (m)      any other event or condition of any character that, either       
    individually or in the aggregate, has had, or could reasonably be expected
to have,            individually or in the aggregate, a Material Adverse Effect;
or                                  (n)      any arrangement or commitment by
the Company or any of its            Subsidiaries to do any of the acts
described in subsection (a) through (m) above.                        4.9    
Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule 
4.9, the Company and each of its Subsidiaries has good and marketable title to
its properties and  assets, and good title to its leasehold interests, in each
case subject to no mortgage, pledge, lien,  lease, encumbrance or charge (each
for the foregoing, a “Lien”) , other than the following (each  a “Permitted
Encumbrance”):                                    (a)      those in favor of the
Agent, for the ratable benefit of the Creditor            Parties;             
                        (b)      those in favor of Laurus Master Fund, Ltd.     
                              (c)      those resulting from taxes which have not
yet become delinquent;      9

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                              (d)      minor Liens which do not materially
detract from the value of the            property subject thereto or materially
impair the operations of the Company or any of its            Subsidiaries, so
long as in each such case, such Liens have no effect on the Lien priority       
    of the Agent, for the ratable benefit of the Creditor Parties, in such
property; and                                  (e)      those that have
otherwise arisen in the ordinary course of business,            so long as they
have no effect on the Lien priority of the Purchaser therein.    All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or 
used by the Company and its Subsidiaries are in good operating condition and
repair and are  reasonably fit and usable for the purposes for which they are
being used. Except as set forth on  Schedule 4.9, the Company and its
Subsidiaries are in compliance with all material terms of each  lease to which
it is a party or is otherwise bound.                        4.10   Intellectual
Property.                                  (a)      Except as set forth on
Schedule 4.10, each of the Company and            each of its Subsidiaries owns
or possesses sufficient legal rights to use all patents,            trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information   
        and other proprietary rights and processes necessary for its business as
now conducted            and, to the Company’s knowledge, as presently proposed
to be conducted (the            “Intellectual Property”). There are no
settlements or consents, covenants not to sue, non-            assertion
assurances, or releases to which the Company or any of its Subsidiaries is     
      bound which adversely affects its rights to own or use any Intellectual
Property.                                  (b)      To the Company’s knowledge,
the conduct of the Company’s and            each of its Subsidiaries’ business
as now conducted, and as presently proposed to be            conducted, does not
(and will not) result in any infringement or other violation of the           
rights of others.                                    (c)      Schedule 4.10 (as
such schedule may be amended or supplemented            from time to time) sets
forth a true and complete list of (i) all registrations and           
applications for Intellectual Property owned by the Company and each of its
Subsidiaries            filed or issued by any Intellectual Property registry
and (ii) all Intellectual Property            licenses which are either material
to the business of the Company or relate to any            material portion of
the Company’s or any of its Subsidiaries’ inventory, including           
licenses for standard software having a replacement value of more than $10,000.
None of            such Intellectual Property licenses are reasonably likely to
be construed as an assignment            of the licensed Intellectual Property
to the Company or any of its Subsidiaries.                                 
(d)      Except as set forth on Schedule 4.10, there are no claims pending     
      or, to the best of the Company’s knowledge, threatened and neither the
Company nor any            of its Subsidiaries has received any other
communications, alleging that, the Company or            any of its Subsidiaries
has infringed, diluted, misappropriated, or otherwise violated any           
Intellectual Property of any other person or entity, nor is the Company or any
of its            Subsidiaries aware of any basis therefore.      10

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                              (e)      The Company is not aware of any
infringement, misappropriation,            or other violation of its
Intellectual Property by any other person or entity.                           
      (f)      Neither the Company nor any of its Subsidiaries utilizes any     
      inventions, trade secrets or other Intellectual Property of any of its
employees, officers, or            contractors, except for inventions, trade
secrets or other Intellectual Property that is            owned by the Company
or any Subsidiary as a matter of law or have been rightfully            assigned
to the Company or any of its Subsidiaries.                        4.11  
Compliance with Other Instruments. Neither the Company nor any of its 
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) any  provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which  it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or  default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either  individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and  performance of and compliance with this Agreement and
the Related Agreements to which it is a  party, and the issuance and sale of the
Notes by the Company and the other Securities by the  Company each pursuant
hereto and thereto, will not, with or without the passage of time or  giving of
notice, result in any such material violation, or be in conflict with or
constitute a  default under any such term or provision, or result in the
creation of any Lien upon any of the  properties or assets of the Company or any
of its Subsidiaries or the suspension, revocation,  impairment, forfeiture or
non-renewal of any permit, license, authorization or approval  applicable to the
Company, its business or operations or any of its assets or properties.         
              4.12   Litigation. Except as set forth on Schedule 4.12 hereto,
there is no action,  suit, proceeding or investigation pending or, to the
Company’s knowledge, currently threatened  against the Company or any of its
Subsidiaries that prevents the Company or any of its  Subsidiaries from entering
into this Agreement or the other Related Agreements, or from  consummating the
transactions contemplated hereby or thereby, or which has had, or could 
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect  or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is  the Company aware that there is any
basis to assert any of the foregoing. Neither the Company  nor any of its
Subsidiaries is a party to or subject to the provisions of any order, writ,
injunction,  judgment or decree of any court or government agency or
instrumentality. There is no action,  suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or  which the Company or
any of its Subsidiaries intends to initiate.                        4.13   Tax
Returns and Payments. The Company and each of its Subsidiaries has  timely filed
all federal, state and, to the extent consistent and in accordance with
industry  practice, local tax returns required to be filed by it. All taxes
shown to be due and payable on  such returns, any assessments imposed, and all
other taxes due and payable by the Company or  any of its Subsidiaries on or
before the Closing, have been paid or will be paid prior to the time  they
become delinquent. Except as set forth on Schedule 4.13, neither the Company nor
any of  its Subsidiaries has been advised:                                 
(a)      that any of its returns, federal, state or other, have been or are     
      being audited as of the date hereof; or      11

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                              (b)      of any adjustment, deficiency, assessment
or court decision in            respect of its federal, state or other taxes.   
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or  assets as of the date of this Agreement that is not adequately
provided for.                        4.14   Employees. Except as set forth on
Schedule 4.14, neither the Company  nor any of its Subsidiaries has any
collective bargaining agreements with any of its employees.  There is no labor
union organizing activity pending or, to the Company’s knowledge, threatened 
with respect to the Company or any of its Subsidiaries. Except as disclosed in
the Exchange Act  Filings or on Schedule 4.14, neither the Company nor any of
its Subsidiaries is a party to or  bound by any currently effective employment
contract, deferred compensation arrangement,  bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee  compensation plan or
agreement. To the Company’s knowledge, no employee of the Company  or any of its
Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries  has contracted, is in violation of any term of any employment
contract, proprietary information  agreement or any other agreement relating to
the right of any such individual to be employed by,  or to contract with, the
Company or any of its Subsidiaries because of the nature of the business  to be
conducted by the Company or any of its Subsidiaries; and to the Company’s
knowledge the  continued employment by the Company and its Subsidiaries of their
present employees, and the  performance of the Company’s and its Subsidiaries’
contracts with its independent contractors,  will not result in any such
violation. Neither the Company nor any of its Subsidiaries is aware  that any of
its employees is obligated under any contract (including licenses, covenants or 
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of  any court or administrative agency that would interfere with
their duties to the Company or any  of its Subsidiaries. Neither the Company nor
any of its Subsidiaries has received any notice  alleging that any such
violation has occurred. Except for employees who have a current effective 
employment agreement with the Company or any of its Subsidiaries, no employee of
the  Company or any of its Subsidiaries has been granted the right to continued
employment by the  Company or any of its Subsidiaries or to any material
compensation following termination of  employment with the Company or any of its
Subsidiaries. Except as set forth on Schedule 4.14,  the Company is not aware
that any officer, key employee or group of employees intends to  terminate his,
her or their employment with the Company or any of its Subsidiaries, nor does
the  Company or any of its Subsidiaries have a present intention to terminate
the employment of any  officer, key employee or group of employees.             
          4.15   Registration Rights and Voting Rights. Except as set forth on
Schedule  4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its  Subsidiaries is presently under any obligation, and
neither the Company nor any of its  Subsidiaries has granted any rights, to
register any of the Company’s or its Subsidiaries’  presently outstanding
securities or any of its securities that may hereafter be issued. Except as  set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company’s  knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any  agreement with respect to the voting of equity securities
of the Company or any of its  Subsidiaries.        12

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                    4.16   Compliance with Laws; Permits. Neither the Company
nor any of its  Subsidiaries is in violation of any provision of the
Sarbanes-Oxley Act of 2002 or any SEC  related regulation or rule or any rule of
the Principal Market (as hereafter defined) promulgated  thereunder or any other
applicable statute, rule, regulation, order or restriction of any domestic or 
foreign government or any instrumentality or agency thereof in respect of the
conduct of its  business or the ownership of its properties which has had, or
could reasonably be expected to  have, either individually or in the aggregate,
a Material Adverse Effect. No governmental  orders, permissions, consents,
approvals or authorizations are required to be obtained and no  registrations or
declarations are required to be filed in connection with the execution and
delivery  of this Agreement or any other Related Agreement and the issuance of
any of the Securities,  except such as have been duly and validly obtained or
filed, or with respect to any filings that  must be made after the Closing, as
will be filed in a timely manner. The Company and its  Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary for 
the conduct of its business as now being conducted by it, the lack of which
could, either  individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.                        4.17   Environmental and
Safety Laws. There are no pending actions, suits or  proceedings by or before
any arbitrator or Governmental Authority pending, or to the knowledge  of
Company threatened, against the Company or any of its Subsidiaries under
Environmental  Law. The Company and its Subsidiaries (i) are and have been in
full compliance with  Environmental Law and have no knowledge or any material
expenditure that will be required to  maintain such compliance in the future;
(ii) have not received any notice or claim alleging that  they are not in full
compliance with or otherwise have liability under Environmental Law; and  (iii)
have not knowledge of any facts or circumstances that could reasonably be
expected to form  the basis of any such claim. No Hazardous Materials are
present or are used or have been used,  stored, or released by the Company or
its Subsidiaries, or to their knowledge by any other  Person, at any property
currently or formerly owned, leased or operated by the Company or its 
Subsidiaries or disposed of at any other location by the Company or its
Subsidiaries except (i) in  compliance with Environmental Law; and (2) in
quantities and under circumstances that would  not require investigation or
remediation by the Company or its Subsidiaries. The Company and  its
Subsidiaries have not assumed by contract or by operation of law the liabilities
arising under  Environmental Law of any other Person. The Company and its
Subsidiaries have provided to the  Agent all material report, audits and
assessments in their possession or control regarding the  environmental
condition of any property currently or formerly owned or operated by the 
Company or any Subsidiary. “Environmental Law” means all laws, rules,
regulations, codes,  ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued,  promulgated or entered into by any
Governmental Authority, relating in any way to pollution or  the environment ,
preservation or reclamation of natural resources, the management, generation, 
use, handling, treatment, transportation, storage, disposal or release or
threatened release of or  exposure to Hazardous Materials, or occupational
health and safety. “Governmental Authority”  means any nation or government, any
state or other political subdivision thereof, and any agency,  department or
other entity exercising executive, legislative, judicial, regulatory or
administrative  functions of or pertaining to government. “Hazardous Materials”
means materials, wastes or  pollutants listed or defined as “hazardous
substances”, “hazardous wastes” ,”toxic substances” or  by words of similar
import or any other substance or waste otherwise regulated by applicable 
Environmental Law, including nuclear materials and radioactive substances or
wastes, petroleum  or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls,      13

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radon gas, infectious or medical wastes, and toxic mold. “Person” means any
individual, sole  proprietorship, partnership, limited liability partnership,
joint venture, trust, unincorporated  organization, association, corporation,
limited liability company, institution, public benefit  corporation, entity or
government (whether federal, state, county, city, municipal or otherwise, 
including any instrumentality, division, agency, body or department thereof),
and shall include  such Person’s successors and assigns.                       
4.18   Valid Offering. Assuming the accuracy of the representations and 
warranties of the Purchasers contained in this Agreement, the offer, sale and
issuance of the  Securities will be exempt from the registration requirements of
the Securities Act of 1933, as  amended (the “Securities Act”), and will have
been registered or qualified (or are exempt from  registration and
qualification) under the registration, permit or qualification requirements of
all  applicable state securities laws.                        4.19   Full
Disclosure. The Company and each of its Subsidiaries has provided  the
Purchasers with all information requested by the Purchasers in connection with
the  Purchasers’ decision to purchase the Notes and Warrants, including all
information the Company  and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither  this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any  other document including,
without limitation, the responses contained in any questionnaire  provided to
the Company by the Agent, delivered by the Company or any of its Subsidiaries
to  Purchasers or their attorneys or agents in connection herewith or therewith
or with the  transactions contemplated hereby or thereby, contain any untrue
statement of a material fact nor  omit to state a material fact necessary in
order to make the statements contained herein or  therein, in light of the
circumstances in which they are made, not misleading. Any financial  projections
and other estimates provided to the Purchasers by the Company or any of its 
Subsidiaries were based on the Company’s and its Subsidiaries’ experience in the
industry and  on assumptions of fact and opinion as to future events which the
Company or any of its  Subsidiaries, at the date of the issuance of such
projections or estimates, believed to be  reasonable.                         
4.20   Insurance. The Company and each of its Subsidiaries has general 
commercial, product liability, fire and casualty insurance policies with
coverages which the  Company and each of its Subsidiaries believe are customary
for companies similarly situated to  the Company and its Subsidiaries in the
same or similar business.                        4.21   SEC Reports. Except as
set forth on Schedule 4.21, the Company has  filed all proxy statements, reports
and other documents required to be filed by it under the  Exchange Act. The
Company has furnished the Agent copies of: (i) its Annual Report on Form  10-K
for its fiscal year ended November 30, 2006; and (ii) its Quarterly Reports on
Form 10-Q  for its fiscal quarters ended February 28, 2007 and May 31, 2007, and
the Form 8-K filings  which it has made during the fiscal year ending November
30, 2007 to date (collectively, the  “SEC Reports”). Except as set forth on
Schedule 4.21, each SEC Report was, at the time of its  filing, in substantial
compliance with the requirements of its respective form and none of the  SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as  of their respective filing dates, contained any untrue
statement of a material fact or omitted to      14

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state a material fact required to be stated therein or necessary to make the
statements therein, in  light of the circumstances under which they were made,
not misleading.                        4.22   Listing. The Common Stock is
listed or quoted, as applicable, on a  Principal Market (as hereafter defined)
and satisfies and at all times hereafter will satisfy, all  requirements for the
continuation of such listing or quotation, as applicable. The Company has  not
received any notice that its Common Stock will be delisted from, or no longer
quoted on, as  applicable, the Principal Market or that its Common Stock does
not meet all requirements for  such listing or quotation, as applicable. For
purposes hereof, the term “Principal Market” means  the NASD Over The Counter
Bulletin Board, NASDAQ Capital Market, NASDAQ National  Markets System, American
Stock Exchange or New York Stock Exchange (whichever of the  foregoing is at the
time the principal trading exchange or market for the Common Stock).           
            4.23   No Integrated Offering. Neither the Company, nor any of its
Subsidiaries  or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any  offers or sales of any security or solicited
any offers to buy any security under circumstances that  would cause the
offering of the Securities pursuant to this Agreement or any of the Related 
Agreements to be integrated with prior offerings by the Company for purposes of
the Securities  Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under  the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will  the Company or any
of its affiliates or Subsidiaries take any action or steps that would cause the 
offering of the Securities to be integrated with other offerings.               
        4.24   Stop Transfer. The Securities are restricted securities as of the
date of this  Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or  other order impeding the sale and delivery of
any of the Securities at such time as the Securities  are registered for public
sale or an exemption from registration is available, except as required by 
state and federal securities laws.                        4.25   Dilution. The
Company specifically acknowledges that its obligation to  issue the shares of
Common Stock upon exercise of the Warrants is binding upon the Company  and
enforceable regardless of the dilution such issuance may have on the ownership
interests of  other shareholders of the Company.                        4.26  
Patriot Act. The Company certifies that, to the best of Company’s  knowledge,
neither the Company nor any of its Subsidiaries has been designated, nor is or
shall  be owned or controlled, by a “suspected terrorist” as defined in
Executive Order 13224. The  Company hereby acknowledges that each of the
Creditor Parties seeks to comply with all  applicable laws concerning money
laundering and related activities. In furtherance of those  efforts, the Company
hereby represents, warrants and covenants that: (i) none of the cash or 
property that the Company or any of its Subsidiaries will pay or will contribute
to any Creditor  Party has been or shall be derived from, or related to, any
activity that is deemed criminal under  United States law; and (ii) no
contribution or payment by the Company or any of its Subsidiaries  to any
Creditor Party, to the extent that they are within the Company’s and/or its
Subsidiaries’  control shall cause any Creditor Party to be in violation of the
United States Bank Secrecy Act,  the United States International Money
Laundering Control Act of 1986 or the United States  International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The      15

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Company shall promptly notify the Agent if any of these representations,
warranties or covenants  ceases to be true and accurate regarding the Company or
any of its Subsidiaries. The Company  shall provide any Creditor Party all
additional information regarding the Company or any of its  Subsidiaries that
such Creditor Party deems necessary or convenient to ensure compliance with  all
applicable laws concerning money laundering and similar activities. The Company 
understands and agrees that if at any time it is discovered that any of the
foregoing  representations, warranties or covenants are incorrect, or if
otherwise required by applicable law  or regulation related to money laundering
or similar activities, the Creditor Parties may  undertake appropriate actions
to ensure compliance with applicable law or regulation, including  but not
limited to segregation and/or redemption of any Purchaser’s investment in the
Company.  The Company further understands that the Creditor Parties may release
confidential information  about the Company and its Subsidiaries and, if
applicable, any underlying beneficial owners, to  proper authorities if such
Creditor Party, in its sole discretion, determines that it is in the best 
interests of such Creditor Party in light of relevant rules and regulations
under the laws set forth  in subsection (ii) above.                       
4.27   ERISA. Based upon the Employee Retirement Income Security Act of  1974
(“ERISA”), and the regulations and published interpretations thereunder: (i)
neither the  Company nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in  Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the  “Code”)); (ii) each of the
Company and each of its Subsidiaries has met all applicable minimum  funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
the  Company nor any of its Subsidiaries has any knowledge of any event or
occurrence which would  cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of  ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its  Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for  the
benefit of persons other than the Company’s or such Subsidiary’s employees; and
(v) neither  the Company nor any of its Subsidiaries has withdrawn, completely
or partially, from any multi-  employer pension plan so as to incur liability
under the Multiemployer Pension Plan  Amendments Act of 1980.             
5.       Representations and Warranties of each Purchaser. Each Purchaser
hereby  represents and warrants, severally and not jointly, to the Company as
follows (such  representations and warranties do not lessen or obviate the
representations and warranties of the  Company set forth in this Agreement):   
                    5.1    No Shorting. Neither such Purchaser nor any of its
affiliates and  investment partners has, nor will cause any person or entity, to
directly engage in “short sales” of  the Common Stock as long as any Note shall
be outstanding.                        5.2    Requisite Power and Authority.
Such Purchaser has all necessary power  and authority under all applicable
provisions of law to execute and deliver this Agreement and  the Related
Agreements and to carry out their provisions. All corporate action on such 
Purchaser’s part required for the lawful execution and delivery of this
Agreement and the  Related Agreements have been or will be effectively taken
prior to the Closing. Upon their  execution and delivery, this Agreement and the
Related Agreements will be valid and binding  obligations of such Purchaser,
enforceable in accordance with their terms, except:      16

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                              (a)      as limited by applicable bankruptcy,
insolvency, reorganization,            moratorium or other laws of general
application affecting enforcement of creditors’            rights; and         
                              (b)      as limited by general principles of
equity that restrict the            availability of equitable and legal
remedies.                          5.3     Investment Representations.  Such
Purchaser understands that the  Securities are being offered and sold pursuant
to an exemption from registration contained in the  Securities Act based in part
upon such Purchaser’s representations contained in this Agreement,  including,
without limitation, that such Purchaser is an “accredited investor” within the
meaning  of Regulation D under the Securities Act. Such Purchaser confirms that
it has received or has  had full access to all the information it considers
necessary or appropriate to make an informed  investment decision with respect
to the applicable Note and Warrant to be purchased by it under  this Agreement
and the Warrant Shares acquired by it upon the exercise of such Warrant, 
respectively. Such Purchaser further confirms that it has had an opportunity to
ask questions and  receive answers from the Company regarding the Company’s and
its Subsidiaries’ business,  management and financial affairs and the terms and
conditions of the Offering, the Notes, the  Warrants and the Securities and to
obtain additional information (to the extent the Company  possessed such
information or could acquire it without unreasonable effort or expense)
necessary  to verify any information furnished to such Purchaser or to which
such Purchaser had access.                        5.4     The Purchaser Bears
Economic Risk. Such Purchaser has substantial  experience in evaluating and
investing in private placement transactions of securities in  companies similar
to the Company so that it is capable of evaluating the merits and risks of its 
investment in the Company and has the capacity to protect its own interests.
Such Purchaser  must bear the economic risk of this investment until the
Securities are sold pursuant to: (i) an  effective registration statement under
the Securities Act; or (ii) an exemption from registration is  available with
respect to such sale.                          5.5     Acquisition for Own
Account. Such Purchaser is acquiring the applicable  Note and Warrant and the
Warrant Shares for such Purchaser’s own account for investment only,  and not as
a nominee or agent and not with a view towards or for resale in connection with
their 
distribution.                              5.6     The Purchaser Can Protect Its
Interest. Such Purchaser represents that by  reason of its, or of its
management’s, business and financial experience, such Purchaser has the 
capacity to evaluate the merits and risks of its investment in the applicable
Note, the Warrant and  the Securities and to protect its own interests in
connection with the transactions contemplated in  this Agreement and the Related
Agreements. Further, such Purchaser is aware of no publication  of any
advertisement in connection with the transactions contemplated in the Agreement
or the  Related Agreements.                            5.7     Accredited
Investor. Such Purchaser represents that it is an accredited  investor within
the meaning of Regulation D under the Securities Act.      17

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                    5.8     Legends.                                  (a)     
The applicable Note shall bear substantially the following legend:             
          “THIS NOTE HAS NOT BEEN REGISTERED UNDER THE                    
SECURITIES ACT OF 1933, AS AMENDED, OR ANY                     APPLICABLE STATE
SECURITIES LAWS. THIS NOTE MAY                     NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR                     HYPOTHECATED IN THE ABSENCE OF (A) AN
EFFECTIVE                     REGISTRATION STATEMENT AS TO THIS NOTE UNDER      
              SAID ACT AND APPLICABLE STATE SECURITIES LAWS                    
OR (B) AN EXEMPTION FROM SUCH REGISTRATION.”                                 
(b)      The applicable Warrant Shares, if not issued by DWAC system (as       
             hereinafter defined), shall bear a legend which shall be in
substantially the following                     form until such shares are
covered by an effective registration statement filed with the                   
 SEC:                              “THE SHARES REPRESENTED BY THIS CERTIFICATE  
                  HAVE NOT BEEN REGISTERED UNDER THE SECURITIES                
    ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE                    
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,                     OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN                     THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION                     STATEMENT UNDER SUCH SECURITIES ACT
AND                     APPLICABLE STATE LAWS OR (B) AN EXEMPTION FROM          
          SUCH REGISTRATION.”                                  (c)      The
applicable Warrant shall bear substantially the following                   
 legend:                              “THIS WARRANT AND THE COMMON SHARES
ISSUABLE                     UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN        
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS                    
AMENDED, OR ANY APPLICABLE STATE SECURITIES                     LAWS. THIS
WARRANT AND THE COMMON SHARES                     ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT                     BE SOLD, OFFERED FOR SALE, PLEDGED OR      
              HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE                  
  REGISTRATION STATEMENT AS TO THIS WARRANT OR                     THE
UNDERLYING SHARES OF COMMON STOCK UNDER                     SAID ACT AND
APPLICABLE STATE SECURITIES LAWS                     OR (B) AN EXEMPTION FROM
SUCH REGISTRATION.”              6.       Covenants of the Company. The Company
covenants and agrees with each  Creditor Party as follows:        18

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                    6.1     Stop-Orders. The Company will, by written notice,
advise the Agent,  promptly after it receives notice of issuance by the SEC, any
state securities commission or any  other regulatory authority of any stop order
or of any order preventing or suspending any  offering of any securities of the
Company, or of the suspension of the qualification of the  Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any 
proceeding for any such purpose.                        6.2     Listing. The
Company shall promptly secure the listing or quotation, as  applicable, of the
shares of Common Stock issuable upon the exercise of the Warrants on the 
Principal Market upon which shares of Common Stock are listed or quoted for
trading, as  applicable (subject to official notice of issuance) and shall
maintain such listing or quotation, as  applicable, so long as any other shares
of Common Stock shall be so listed or quoted, as  applicable. The Company will
maintain the listing or quotation, as applicable, of its Common  Stock on the
Principal Market, and will comply in all material respects with the Company’s 
reporting, filing and other obligations under the bylaws or rules of the
National Association of  Securities Dealers (“NASD”) and such exchanges, as
applicable.                        6.3     Market Regulations. The Company shall
notify the SEC, NASD and  applicable state authorities, in accordance with their
requirements, of the transactions  contemplated by this Agreement, and shall
take all other necessary action and proceedings as  may be required and
permitted by applicable law, rule and regulation, for the legal and valid 
issuance of the applicable Securities to each Purchaser and promptly provide
copies thereof to  such Purchaser.                            6.4     Reporting
Requirements. The Company will deliver, or cause to be  delivered, to the Agent
each of the following, which shall be in form and detail acceptable to the 
Agent:                                      (a)      As soon as available, and
in any event within ninety (90) days after            the end of each fiscal
year of the Company, the Company’s and each of its Subsidiaries’           
audited financial statements with a report of independent registered accounting
firm of            recognized standing selected by the Company and acceptable to
the Agent (the            “Accountants”), which annual financial statements
shall include the Company’s and each            of its Subsidiaries’ balance
sheet as at the end of such fiscal year and the related            statements of
the Company’s and each of its Subsidiaries’ income, retained earnings and       
    cash flows for the fiscal year then ended, prepared on a consolidated basis
to include the            Company, each Subsidiary of the Company and each of
their respective affiliates, all in            reasonable detail and prepared in
accordance with GAAP, together with (i) if and when            available, copies
of any management letters prepared by the Accountants; and (ii) a           
certificate of the Company’s President, Chief Executive Officer or Chief
Financial            Officer stating that such financial statements have been
prepared in accordance with            GAAP and whether or not such officer has
knowledge of the occurrence of any Event of            Default (as defined in
each Note) and, if so, stating in reasonable detail the facts with           
respect thereto;                                    (b)      As soon as
available and in any event within forty five (45) days            after the end
of each fiscal quarter of the Company, an unaudited/internal balance sheet     
19

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          and statements of income, retained earnings and cash flows of the
Company and each of            its Subsidiaries as at the end of and for such
quarter and for the year to date period then            ended, prepared on a
consolidating and consolidated basis to include all the Company,            each
Subsidiary of the Company and each of their respective affiliates, in
reasonable            detail and stating in comparative form the figures for the
corresponding date and periods            in the previous year, all prepared in
accordance with GAAP, subject to year-end            adjustments and accompanied
by a certificate of the Company’s President, Chief            Executive Officer
or Chief Financial Officer, stating (i) that such financial statements         
  have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and            (ii) whether or not such officer has knowledge of
the occurrence of any Event of Default            (as defined in each Note) not
theretofore reported and remedied and, if so, stating in            reasonable
detail the facts with respect thereto;                                  (c)     
As soon as available and in any event within twenty (20) days after           
the end of each calendar month, an unaudited/internal balance sheet and
statements of            income, retained earnings and cash flows of the Company
and its Subsidiaries as at the            end of and for such month and for the
year to date period then ended, prepared on a            consolidating and
consolidated basis to include the Company, each Subsidiary of the           
Company and each of their respective affiliates, in reasonable detail and
stating in            comparative form the figures for the corresponding date
and periods in the previous year,            all prepared in accordance with
GAAP, subject to year-end adjustments and accompanied            by a
certificate of the Company’s President, Chief Executive Officer or Chief
Financial            Officer, stating (i) that such financial statements have
been prepared in accordance with            GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has            knowledge of
the occurrence of any Event of Default (as defined in each Note) not           
theretofore reported and remedied and, if so, stating in reasonable detail the
facts with            respect thereto;                                   
(d)      The Company shall timely file with the SEC all reports required to     
      be filed pursuant to the Exchange Act and refrain from terminating its
status as an issuer            required by the Exchange Act to file reports
thereunder even if the Exchange Act or the            rules or regulations
thereunder would permit such termination. Promptly after (i) the           
filing thereof, copies of the Company’s most recent registration statements and
annual,            quarterly, monthly or other regular reports which the Company
files with the SEC, and            (ii) the issuance thereof, copies of such
financial statements, reports and proxy statements            as the Company
shall send to its stockholders; and                                  (e)     
The Company shall deliver, or cause the applicable Subsidiary of            the
Company to deliver, such other information as any Creditor Party shall
reasonably            request.                            6.5     Use of Funds.
The Company shall use the proceeds of the sale of the  Notes and the Warrants
for general working capital purposes only (it being understood that 
$2,664,035.38 of the proceeds of the Notes will be deposited in the Restricted
Account on the  Closing Date and shall be subject to the terms and conditions of
the Restricted Account  Agreement and the Restricted Account Side Letter).     
20

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                    6.6     Access to Facilities. The Company and each of its
Subsidiaries will  permit any representatives designated by the Agent (or any
successor of the Agent), upon  reasonable notice and during normal business
hours, at such person’s expense and accompanied  by a representative of the
Company or any Subsidiary (provided that no such prior notice shall be  required
to be given and no such representative of the Company or any Subsidiary shall
be  required to accompany the Agent, except in the case of access to switching
facilities, in the event  the Agent believes such access is necessary to
preserve or protect the Collateral (as defined in the  Master Security
Agreement) or following the occurrence and during the continuance of an Event 
of Default (as defined in each Note)), to:                                 
(a)      visit and inspect any of the properties of the Company or any of its   
        Subsidiaries;                                    (b)      examine the
corporate and financial records of the Company or any            of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law            or by contract) and make copies thereof or extracts
therefrom; and                                  (c)      discuss the affairs,
finances and accounts of the Company or any of            its Subsidiaries with
the directors, officers and independent accountants of the Company            or
any of its Subsidiaries.    Notwithstanding the foregoing, neither the Company
nor any of its Subsidiaries will provide any  material, non-public information
to any Creditor Party unless such Creditor Party signs a  confidentiality
agreement and otherwise complies with Regulation FD, under the federal 
securities laws.                            6.7     Taxes.                     
              (a)      The Company and each of its Subsidiaries will promptly
pay and            discharge, or cause to be paid and discharged, when due and
payable, all taxes,            assessments and governmental charges or levies
imposed upon the income, profits,            property or business of the Company
and its Subsidiaries; provided, however, that any            such tax,
assessment, charge or levy need not be paid currently if (i) the validity
thereof            shall currently and diligently be contested in good faith by
appropriate proceedings, (ii)            such tax, assessment, charge or levy
shall have no effect on the lien priority of the Agent            in any
property of the Company or any of its Subsidiaries and (iii) if the Company
and/or            such Subsidiary shall have set aside on its books adequate
reserves with respect thereto in            accordance with GAAP; and provided,
further, that the Company and its Subsidiaries will            pay all such
taxes, assessments, charges or levies forthwith upon the commencement of       
    proceedings to foreclose any lien which may have attached as security
therefor.            Notwithstanding the foregoing, all state and local telecom
taxes need only be paid in            accordance with industry practices.       
                          (b)      All payments made by the Company under this
Agreement or any            Note shall be made free and clear of, and without
deduction or withholding for or on            account of, any present or future
Taxes (as defined below) now or hereafter imposed,            levied, collected,
withheld or assessed by any Governmental Authority, other than      21

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          Excluded Taxes (as defined below). If any Non-Excluded Taxes (as
defined below) or            Other Taxes (as defined below) are required to be
withheld from any amounts payable to            any Creditor Party under this
Agreement or any Note, the amounts so payable to such            Creditor Party
shall be increased to the extent necessary to yield to such Creditor Party     
      (after payment of all Non-Excluded Taxes and Other Taxes, including those
imposed on            payments made pursuant to this paragraph (b) of this
Section 6.7 or any such other            amounts payable in this Agreement or
any Note at the rates or in the amounts specified            herein or therein),
an amount equal to the sum it would have received had no such           
withholding or deductions been made; provided, however, that no Company shall
be            required to increase any such amounts payable to any Creditor
Party with respect to any            Non-Excluded Taxes (i) that are
attributable to such Creditor Party’s failure to comply            with the
requirements of paragraph (e) of this Section 6.7 or (ii) that are United
States            withholding taxes imposed on amounts payable to such Creditor
Party at the time such            Creditor Party becomes a party to Purchase
Agreement, except to the extent that such            Creditor Party’s assignor
(if any) was entitled, at the time of assignment, to receive           
additional amounts from the Company with respect to such Non-Excluded Taxes     
      pursuant to this paragraph (b).                                  (c)    
 In addition, the Company shall pay any Other Taxes to the relevant           
Governmental Authority in accordance with applicable law.                       
          (d)      Whenever any Non-Excluded Taxes or Other Taxes are payable
by            the Company, as promptly as possible thereafter the Company shall
send to the Agent for            its own account or for the account of the
relevant Purchaser, as the case may be, a            certified copy of an
original official receipt received by the Company showing payment           
thereof (or such other evidence reasonably satisfactory to the Agent). If the
Company            fails to pay any Non-Excluded Taxes or Other Taxes when due
to the appropriate taxing            authority or fails to remit to the Agent
the required receipts or other required            documentary evidence, the
Company shall indemnify the Creditor Parties for any            incremental
taxes, interest or penalties that may become payable by any Creditor Party as   
        a result of any such failure.                                  (e)    
 Each Purchaser (or its assignee) that is not a “United States           
Person” as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Purchaser”)
shall            deliver to the Company and the Agent two completed originals of
an appropriate U.S.            Internal Revenue Service Form W-8, as applicable,
or any subsequent versions thereof or            successors thereto, properly
completed and duly executed by such Non-U.S. Purchaser.            Such forms
shall be delivered by each Non-U.S. Purchaser on or before the date it         
  becomes a party to this Agreement. In addition, each Non-U.S. Purchaser shall
deliver            such forms promptly upon the obsolescence or invalidity of
any form previously            delivered by such Non-U.S. Purchaser. Each
Non-U.S. Purchaser shall promptly notify            the Company at any time it
determines that it is no longer in a position to provide any           
previously delivered certificate to the Company (or any other form of
certification            adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other            provision of this paragraph (e),
a Non-U.S. Purchaser shall not be required to deliver any            form
pursuant to this paragraph that such Non-U.S. Purchaser is not legally able to 
          deliver.        22

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                              (f)      The agreements in the preceding
paragraphs (b), (c), (d), (e) and            this paragraph (f) shall survive
the termination of this Agreement and the payment of the            Notes and
all other amounts payable hereunder or thereunder or under any other Related   
        Agreement.                As used in this Section 6.7, the following
terms shall have the following meanings (such  meanings to be equally applicable
to both the singular and plural forms of the terms defined):             
“Excluded Taxes” means, with respect to any Creditor Party, taxes imposed on or 
measured by its overall net income and franchise taxes imposed on it in lieu of
net income taxes,  by the jurisdiction (or any political subdivision thereof)
under the laws of which such Creditor  Party is incorporated or organized or by
the jurisdiction (or any political subdivision thereof) in  which the principal
place of management or applicable lending office of such Creditor Party is 
located.                  “Non-Excluded Taxes” means all Taxes other than (i)
Excluded Taxes and (ii) Other  Taxes.                  “Other Taxes” means any
and all present or future stamp or documentary taxes or any  other excise or
property taxes, charges or similar levies arising from any payment made 
hereunder or from the execution, delivery or enforcement of, or otherwise with
respect to, this  Agreement or any other Related Agreement.              “Taxes”
means any and all present or future taxes, duties, levies, imposts, deductions, 
assessments, fees, withholdings or similar charges, and all liabilities with
respect thereto.                        6.8     Insurance. Each of the Company
and its Subsidiaries will keep its assets  which are of an insurable character
insured by financially sound and reputable insurers against  loss or damage by
fire, explosion and other risks customarily insured against by companies in 
similar business similarly situated as the Company and its Subsidiaries; and the
Company and its  Subsidiaries will maintain, with financially sound and
reputable insurers, insurance against other  hazards and risks and liability to
persons and property to the extent and in the manner which the  Company
reasonably believes is customary for companies in similar business similarly
situated  as the Company and its Subsidiaries and to the extent available on
commercially reasonable  terms. The Company, and each of its Subsidiaries, will
jointly and severally bear the full risk of  loss from any loss of any nature
whatsoever with respect to the assets pledged to the Purchaser as  security for
their respective obligations hereunder and under the Related Agreements. At the 
Company’s and each of its Subsidiaries’ joint and several cost and expense in
amounts and with  carriers reasonably acceptable to the Purchaser, each of the
Company and each of its Subsidiaries  shall (i) keep all its insurable
properties and properties in which it has an interest insured against  the
hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage  insurance and such other hazards, and for such amounts, as is
customary in the case of  companies engaged in businesses similar to the
Company’s or the respective Subsidiary’s  including business interruption
insurance; (ii) maintain a bond in such amounts as is customary  in the case of
companies engaged in businesses similar to the Company’s or the respective 
Subsidiary’s insuring against larceny, embezzlement or other criminal
misappropriation of  insured’s officers and employees who may either singly or
jointly with others at any time have      23

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access to the assets or funds of the Company or any of its Subsidiaries either
directly or through  governmental authority to draw upon such funds or to direct
generally the disposition of such  assets; (iii) maintain public and product
liability insurance against claims for personal injury,  death or property
damage suffered by others; (iv) maintain all such worker’s compensation or 
similar insurance as may be required under the laws of any state or jurisdiction
in which the  Company or the respective Subsidiary is engaged in business; and
(v) furnish the Purchaser with  (x) copies of all policies and evidence of the
maintenance of such policies at least thirty (30)  days before any expiration
date, (y) excepting the Company’s workers’ compensation policy,  endorsements to
such policies naming the Purchaser as “co-insured” or “additional insured” and 
appropriate loss payable endorsements in form and substance satisfactory to the
Purchaser,  naming the Purchaser as loss payee, and (z) evidence that as to the
Purchaser the insurance  coverage shall not be impaired or invalidated by any
act or neglect of the Company or any  Subsidiary and the insurer will provide
the Purchaser with at least thirty (30) days notice prior to  cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in the 
event of any loss thereunder, the carriers shall make payment for such loss to
the Company  and/or the Subsidiary and the Purchaser jointly. In the event that
as of the date of receipt of each  loss recovery upon any such insurance, the
Purchaser has not declared an event of default with  respect to this Agreement
or any of the Related Agreements, then the Company and/or such  Subsidiary shall
be permitted to direct the application of such loss recovery proceeds toward 
investment in property, plant and equipment that would comprise “Collateral”
secured by the  Purchaser’s security interest pursuant to the Master Security
Agreement or such other security  agreement as shall be required by the
Purchaser, with any surplus funds to be applied toward  payment of the
obligations of the Company to the Purchaser. In the event that the Purchaser
has  properly declared an event of default with respect to this Agreement or any
of the Related  Agreements, then all loss recoveries received by the Purchaser
upon any such insurance  thereafter may be applied to the obligations of the
Company hereunder and under the Related  Agreements, in such order as the
Purchaser may determine. Any surplus (following satisfaction  of all Company
obligations to the Purchaser) shall be paid by the Purchaser to the Company or 
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the  Company or the Subsidiary, as applicable, to the Purchaser, on
demand.                        6.9     Intellectual Property.                   
              (a)      The Company and each of its Subsidiaries shall maintain
in full            force and effect its existence, rights and franchises and all
licenses and other rights to            own or use Intellectual Property
including registrations and applications therefore, that            are
necessary to the conduct of its business, as now conducted or as presently
proposed to            be conducted, and shall not do any act or omit to do any
act whereby any of such            Intellectual Property may lapse, or become
abandoned, dedicated to the public, or            unenforceable, or the Lien
therein in favor of the Agent, for the ratable benefit of the           
Creditor Parties, would be adversely affected,                                 
(b)      The Company shall report to the Agent (i) the filing by the           
Company or any of its Subsidiaries of any application to register a Copyright no
later            than ten (10) days after such filing occurs (ii) the filing of
any application to register any            other Intellectual Property with any
other Intellectual Property registry, and the issuance            thereof, no
later than thirty (30) days after such filing or issuance occurs and, in each   
  24

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          case, shall, simultaneously with such report, deliver to the Agent
fully-executed            documents required to acknowledge, confirm, register,
record or perfect the Lien in such            Intellectual Property. In
addition, the Company and its Subsidiaries hereby authorize the            Agent
to modify this Agreement by amending Schedule 4.10 to include any registrations 
          or applications for Intellectual Property inadvertently omitted from
such Schedule or            filed, registered, acquired by the Company or any of
its Subsidiaries after the date hereof            and agree to cooperate with
the Agent in effecting any such amendment to include any            new item of
Intellectual Property included in the Collateral.                               
  (c)      The Company shall, and shall cause each of its Subsidiaries to,     
      promptly upon the reasonable request of the Agent, execute and deliver to
the Agent any            document or instrument required to acknowledge,
confirm, register, record, or perfect the            Lien of the Agent in any
part of the Intellectual Property owned by the Company and its           
Subsidiaries.                                    (d)      The Company shall not,
and shall not permit any of its Subsidiaries            to, sell, assign,
transfer, license, grant any option, or create or suffer to exist any Lien     
      upon or with respect to Intellectual Property, except for the Permitted
Encumbrances or            with the written consent of the Agent.               
        6.10    Properties. The Company and each of its Subsidiaries will keep
its  properties in good repair, working order and condition, reasonable wear and
tear excepted, and  from time to time make all needful and proper repairs,
renewals, replacements, additions and  improvements thereto; and each of the
Company and each of its Subsidiaries will at all times  comply with each
provision of all leases to which it is a party or under which it occupies 
property if the breach of such provision could, either individually or in the
aggregate, reasonably  be expected to have a Material Adverse Effect.           
            6.11    Confidentiality. The Company will not, and will not permit
any of its  Subsidiaries to, disclose, and will not include in any public
announcement, the name of any  Creditor Party, unless expressly agreed to by
such Creditor Party or unless and until such  disclosure is required by law or
applicable regulation, and then only to the extent of such  requirement.
Notwithstanding the foregoing, (i) the Company may disclose any Creditor
Party’s  identity and the terms of this Agreement and the Related Agreements to
its current and  prospective debt and equity financing sources, and (ii) the
Company (and each employee,  representative, or other agent of the Company) may
disclose to any and all Persons, without  limitation of any kind, the tax
treatment and any facts that may be relevant to the tax structure of  the
transactions contemplated by this Agreement and the Related Agreements and the 
agreements referred to therein; provided, however, that the Company (and no
employee,  representative or other agent of the Company) disclose pursuant to
this clause (ii) any other  information that is not relevant to understanding
the tax treatment or tax structure of such  transactions (including the identity
of any party or any information that could lead another to  determine the
identity of any party); and, provided, further, that the Company will not, and
will  not permit any of its Subsidiaries to, disclose any information to the
extent that such disclosure  could reasonably be expected to result in a
violation of any U.S. federal or state securities law or  similar law of another
jurisdiction. Each Creditor Party shall be permitted to discuss, distribute  or
otherwise transfer any non-public information of the Company and its
Subsidiaries in such      25

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Creditor Party’s possession now or in the future to potential or actual (i)
direct or indirect  investors in such Creditor Party and (ii) third party
assignees or transferees of all or a portion of  the obligations of the Company
and/or any of its Subsidiaries hereunder and under the Related  Agreements,
provided, that such entities who receive such non-public information shall be
bound  by the same confidentiality requirements imposed on the Creditor Parties
by the terms of this  Agreement and the Related Agreements.                     
  6.12    Required Approvals. (I) The Company, without the prior written
consent  of the Agent, shall not, and shall not permit any of its Subsidiaries
to:                                  (a)      (i) directly or indirectly declare
or pay any dividends, other than            dividends paid to the Company or any
of its wholly-owned Subsidiaries, (ii) issue any            preferred stock that
is mandatorily redeemable prior to the one year anniversary of the           
Maturity Date (as defined in each Note) or (iii) redeem any of its preferred
stock or other            equity interests;                                   
(b)      liquidate, dissolve or effect a material reorganization (it being     
      understood that in no event shall the Company or any of its Subsidiaries
dissolve,            liquidate or merge with any other person or entity (unless,
in the case of such a merger,            the Company or, in the case of merger
not involving the Company, such Subsidiary, as            applicable, is the
surviving entity);                                  (c)      become subject to
(including, without limitation, by way of            amendment to or
modification of) any agreement or instrument which by its terms would           
(under any circumstances) restrict the Company’s or any of its Subsidiaries,
right to            perform the provisions of this Agreement, any Related
Agreement or any of the            agreements contemplated hereby or thereby;   
                              (d)      materially alter or change the scope of
the business of the            Company and its Subsidiaries taken as a whole;
or                                  (e)      (i) create, incur, assume or suffer
to exist any indebtedness            (exclusive of trade debt and debt incurred
to finance the purchase of equipment (not in            excess of five percent
(5%) of the fair market value of the Company’s and its            Subsidiaries’
assets; provided that, notwithstanding the foregoing, capitalized leases       
    and/or financing to purchase equipment in connection with the Company’s
Voice Over IP            Point-of-Presence system shall be permitted to the
extent not in excess of, when            aggregated with all other debt incurred
to finance the purchase of equipment, twenty-five            percent (25%) of
the fair market value of the Company’s and its Subsidiaries’ assets))           
whether secured or unsecured other than (x) the Company’s obligations owed to
each            Purchaser, (y) indebtedness set forth on Schedule 6.12(e)
attached hereto and made a part            hereof and any refinancings or
replacements thereof on terms no less favorable to the            Purchasers
than the indebtedness being refinanced or replaced, and (z) any indebtedness   
        incurred in connection with the purchase of assets (other than
equipment) in the ordinary            course of business, or any refinancings or
replacements thereof on terms no less favorable            to the Purchasers
than the indebtedness being refinanced or replaced, so long as any lien         
  relating thereto shall only encumber the fixed assets so purchased and no
other assets of      26

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          the Company or any of its Subsidiaries; (ii) cancel any indebtedness
owing to it in excess            of $50,000 in the aggregate during any twelve
(12) month period; (iii) assume, guarantee,            endorse or otherwise
become directly or contingently liable in connection with any           
obligations of any other person or entity, except the endorsement of negotiable 
          instruments by the Company or any Issuer Party for deposit or
collection or similar            transactions in the ordinary course of business
or guarantees of indebtedness otherwise            permitted to be outstanding
pursuant to this clause (e); (iv) make any payment or            distribution in
respect of any subordinated indebtedness of the Company or its           
Subsidiaries in violation of any subordination or other agreement made in favor
of any            Creditor Party; and (v) except as set forth on Schedule
6.12(e), make any optional            payment or prepayment on or redemption
(including, without limitation, by making            payments to a sinking fund
or analogous fund) or repurchase of any indebtedness for            borrowed
money other than indebtedness pursuant to this Agreement;                       
          (f)      purchase or hold beneficially any Stock or other securities
or            evidences of indebtedness of, make or permit to exist any loans or
advances to, or make            any investment or acquire any interest
whatsoever in, any other Person, including any            partnership or joint
venture, except (x) travel advances, (y) loans to its and its           
Subsidiaries’ officers and employees not exceeding at any one time an aggregate
of            $10,000, and (z) loans or advances to any Issuer Parties (as used
herein, “Stock” means            all certificated and uncertificated shares,
options, warrants, membership interests, general            or limited
partnership interests, participation or other equivalents (regardless of how   
        designated) of or in a corporation, partnership, limited liability
company or equivalent            entity whether voting or nonvoting, including
common stock, preferred stock, or any            other “equity security” (as
such term is defined in Rule 3a11-1 of the General Rules and           
Regulations promulgated by the SEC under the Exchange Act);                     
            (g)      enter into any transaction with any employee, director or
Affiliate,            except in the ordinary course on arms-length terms (as
used herein (x) “Affiliate” means,            with respect to any Person, (a)
any other Person (other than a Subsidiary) which, directly            or
indirectly, is in control of, is controlled by, or is under common control with
such            Person or (b) any other Person who is a director or officer (i)
of such Person, (ii) of any            Subsidiary of such Person or (iii) of any
Person described in clause (a) above. For the            purposes of this
definition, control of a Person shall mean the power (direct or indirect) to   
        direct or cause the direction of the management and policies of such
Person whether by            contract or otherwise and (y) “Person” means any
individual, sole proprietorship,            partnership, limited liability
partnership, joint venture, trust, unincorporated organization,           
association, corporation, limited liability company, institution, public benefit
corporation,            entity or government (whether federal, state, county,
city, municipal or otherwise,            including any instrumentality,
division, agency, body or department thereof), and shall            include such
Person’s successors and assigns);                                  (h)    
 permit any Inactive Subsidiary to hold significant assets or           
liabilities (other than in respect of AVI Holdings, capitalized lease
obligations not to            exceed $35,000, and in respect of Line One,
liabilities not to exceed $50,000) or engage            in any business
activities; and      27

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                                        (i)  sell, lease, transfer or otherwise
dispose of any of its properties or            assets, or any of the properties
or assets of its Subsidiaries, except for (1) sales, leases,            transfer
or dispositions by any Issuer Party to any other Issuer Party, (2) the sale of 
          Inventory (as defined in the Master Security Agreement) in the
ordinary course of            business and (3) the disposition or transfer in
the ordinary course of business during any            fiscal year of obsolete
and worn-out Equipment (as defined in the Master Security            Agreement)
and only to the extent that (x) the proceeds of any such disposition are used   
        to acquire replacement Equipment which is subject to the Purchaser’s
first priority            security interest or are used to repay the Purchaser
or to pay general corporate expenses,            or (y) following the occurrence
of an Event of Default (as defined in the Note) which            continues to
exist, the proceeds of which are remitted to the Purchaser to be held as cash   
        collateral for the Obligations (as defined in the Master Security
Agreement).              (II) The Company, without the prior written consent of
the Agent, shall not, and shall not  permit any of its Subsidiaries to, create
or acquire any Subsidiary after the date hereof unless (i)  such Subsidiary is a
wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes  a party
to (A) the Master Security Agreement and the Stock Pledge Agreement (either by 
executing a counterpart thereof or an assumption or joinder agreement in respect
thereof); (B) a  Subsidiary Guaranty in favor of the Purchasers in form and
substance satisfactory to the Agent  and (c) to the extent required by the
Agent, satisfies each condition of this Agreement and the  Related Agreements as
if such Subsidiary were a Subsidiary on the Closing Date.                       
6.13    Reissuance of Securities. The Company agrees to reissue certificates 
representing the Securities without the legends set forth in Section 5.8 above
at such time as:                                  (a)      the holder thereof is
permitted to dispose of such Securities                     pursuant to Rule
144(k) under the Securities Act; or                                  (b)    
 upon resale subject to an effective registration statement after such         
           Securities are registered under the Securities Act.    The Company
agrees to cooperate with the Purchasers in connection with all resales pursuant
to  Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided  the Company and its counsel receive reasonably requested
representations from the applicable  Purchasers and broker, if any.             
          6.14    Opinion. On the Closing Date, the Company will deliver to the
Creditor  Parties an opinion substantially in the form of Exhibit C hereto
acceptable to the Agent from the  Company’s external legal counsel. The Company
will provide, at the Company’s expense, such  other legal opinions in the future
as are deemed reasonably necessary by the Agent (and  acceptable to the Agent)
in connection with the exercise of the any Warrant.                       
6.15    Margin Stock. The Company will not permit any of the proceeds of the 
Notes or the Warrants to be used directly or indirectly to “purchase” or “carry”
“margin stock” or  to repay indebtedness incurred to “purchase” or “carry”
“margin stock” within the respective  meanings of each of the quoted terms under
Regulation U of the Board of Governors of the  Federal Reserve System as now and
from time to time hereafter in effect.      28

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                    6.16     FIRPTA. Neither the Company, nor any of its
Subsidiaries, is a “United  States real property holding corporation” as such
term is defined in Section 897(c)(2) of the  Code and Treasury Regulation
Section 1.897-2 promulgated thereunder and neither the Company  nor any of its
Subsidiaries shall at any time take any action or otherwise acquire any interest
in  any asset or property to the extent the effect of which shall cause the
Company and/or such  Subsidiary, as the case may be, to be a “United States real
property holding corporation” as such  term is defined in Section 897(c)(2) of
the Code and Treasury Regulation Section 1.897-2  promulgated thereunder.       
                6.17     Restricted Cash Disclosure. The Company agrees that, in
connection with  its filing of its 8-K Report with the SEC concerning the
transactions contemplated by this  Agreement and the Related Agreements (such
report, the “Transaction 8-K”) in a timely manner  after the date hereof, it
will disclose in such Transaction 8-K the amount of the proceeds of the  Notes
issued to the Purchasers that has been placed in a restricted cash account and
is subject to  the terms and conditions of this Agreement and the Related
Agreements. Furthermore, the  Company agrees to disclose in all public filings
required by the SEC (where appropriate)  following the filing of the Transaction
8-K, the existence of the restricted cash referred to in the  immediately
preceding sentence, together with the amount thereof.                       
6.18     No Restrictions on Additional Financing. The Company will not, and
will  not permit its Subsidiaries to, agree, directly or indirectly, to any
restriction with any person or  entity which limits the ability of the Purchaser
to extend any additional indebtedness to the  Company or any of its Subsidiaries
and/or the ability of the Company or any of its Subsidiaries  to sell or issue
any equity interests of the Company or any of its Subsidiaries to the
Purchaser.                        6.19     Authorization and Reservation of
Shares. The Company shall at all times  have authorized and reserved a
sufficient number of shares of Common Stock to provide for the  exercise of the
Warrant A-1 and B-1 by each applicable Purchaser. No later than June 30, 2008, 
the Company shall at all times have authorized and reserved a sufficient number
of shares of  Common Stock to provide for the exercise of the Warrant A-2, B-2,
A-3 and B-3 by each  applicable Purchaser.                          6.20   
 Intentionally Omitted.                        6.21     Board Observation
Rights. Until such time as all Obligations (as defined  in the Master Security
Agreement) have been indefeasibly paid in full, the Purchasers will be  entitled
to the following board observation rights (“Board Observation Rights”): the
Company  shall, upon the request of the Agent, permit one representative of the
Purchasers to attend all  meetings of the board of directors of the Company (the
“Board of Directors”) in a non-voting  observer capacity, which observation
right shall include the ability to observe discussions of the  Board of
Directors, and shall provide such representative with copies of all notices,
minutes,  written consents, and other materials that it provides to members of
the Board of Directors, at the  time it provides them to such members. The
observation right may be exercised in person or via  telephone or videophone
participation. Each Purchaser agrees, on behalf of itself and any 
representative exercising the observation rights set forth herein, that so long
as it shall exercise  its observation right (i) it shall hold in strict
confidence pursuant to a confidentiality and non-  disclosure agreement (in form
and substance satisfactory to each Purchaser) all information and      29

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materials that it may receive or be given access to in connection with meetings
of the Board of  Directors and to act in a fiduciary manner with respect to all
information so provided (provided  that this shall not limit its ability to
discuss such matters with its officers, directors or legal  counsel, as
necessary), and (ii) the Board of Directors may withhold from it certain
information  or material furnished or made available to the Board of Directors
or exclude it from certain  confidential “closed sessions” of the Board of
Directors if the furnishing or availability of such  information or material or
its presence at such “closed sessions” would jeopardize such  Company’s
attorney-client privilege or if the Board of Directors otherwise reasonably so 
requires. The Board Observation Rights set forth in this Section shall
automatically terminate  and be of no further force or effect upon the
indefeasibly payment in full of all Obligations (as  defined in the Master
Security Agreement).                        6.22   Share Increase.             
                    (a)      No later than June 30, 2008, the Company shall
deliver to the            Agent evidence of the filing of a Proxy Statement with
respect to an increase in the            Company’s authorized common stock to an
aggregate amount of not less than            250,000,000.                       
            (b)      No later than June 30, 2008, the Company shall deliver to
the            Agent evidence that the Company's Certificate of Incorporation
has been amended to            increase the authorized Common Stock to an
aggregate amount of not less than            250,000,000.               
7.       Covenants of the Purchasers. Each Purchaser covenants and agrees with
the  Company as follows:                          7.1     Confidentiality. No
Purchaser will disclose, nor will it include in any  public announcement, the
name of the Company, unless expressly agreed to by the Company or  unless and
until such disclosure is required by law or applicable regulation, and then only
to the  extent of such requirement.                        7.2     Non-Public
Information. No Purchaser will effect any sales in the shares  of the Common
Stock while in possession of material, non-public information regarding the 
Company if such sales would violate applicable securities law.                 
      7.3     Limitation on Acquisition of Common Stock of the Company. 
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement  or any document, instrument or agreement entered into in
connection with any other transactions  with a Purchaser and the Company, no
Purchaser (and/or Subsidiaries or Affiliates of such  Purchaser) may acquire
stock in the Company (including, without limitation, pursuant to a  contract to
purchase, by exercising an option or warrant, by converting any other security
or  instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security  convertible into shares of stock in the Company, or
otherwise, and such contracts, options,  warrants, conversion or other rights
shall not be enforceable or exercisable) to the extent such  stock acquisition
would cause any interest (including any original issue discount) payable by the 
Company to a Non-U.S. Purchaser not to qualify as “portfolio interest” within
the meaning of      30 

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Section 871(h)(2) or Section 881(c)(2) of the Code, by reason of Section
871(h)(3) or Section  881(c)(3) of the Code, as applicable, taking into account
the constructive ownership rules under  Section 871(h)(3)(C) of the Code (the
“Stock Acquisition Limitation”). The Stock Acquisition  Limitation shall
automatically become null and void without any notice to the Company upon the 
earlier to occur of either (a) the Company’s delivery to the Purchaser of a
Notice of Redemption  (as defined in the Note) or (b) the existence of an Event
of Default (as defined in each Note) at a  time when the average closing price
of the Common Stock as reported by Bloomberg, L.P. on  the Principal Market for
the immediately preceding five trading days is greater than or equal to  150% of
the Exercise Price (as defined in the Warrant).              8.       Covenants
of the Company and the Purchasers Regarding Indemnification.                   
    8.1     Company Indemnification. The Company agrees to indemnify, hold 
harmless, reimburse and defend each Creditor Party, each of such Creditor
Party’s officers,  directors, agents, affiliates, control persons, and principal
shareholders, against all claims, costs,  expenses, liabilities, obligations,
losses or damages (including reasonable legal fees) of any  nature, incurred by
or imposed upon such Creditor Party which result, arise out of or are based 
upon: (i) any misrepresentation by the Company or any of its Subsidiaries or
breach of any  warranty by the Company or any of its Subsidiaries in this
Agreement, any other Related  Agreement or in any exhibits or schedules attached
hereto or thereto; or (ii) any breach or default  in performance by Company or
any of its Subsidiaries of any covenant or undertaking to be  performed by
Company or any of its Subsidiaries hereunder, under any other Related Agreement 
or any other agreement entered into by the Company and/or any of its
Subsidiaries and such  Creditor Party relating hereto or thereto.               
        8.2     Purchaser Indemnification. Each Creditor Party agrees to
indemnify, hold  harmless, reimburse and defend the Company and each of the
Company’s officers, directors,  agents, affiliates, control persons and
principal shareholders, at all times against any claims,  costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal fees)
of  any nature, incurred by or imposed upon the Company which result, arise out
of or are based  upon: (i) any misrepresentation by such Creditor Party or
breach of any warranty by such  Creditor Party in this Agreement or in any
exhibits or schedules attached hereto or any Related  Agreement; or (ii) any
breach or default in performance by such Creditor Party of any covenant  or
undertaking to be performed by such Creditor Party hereunder, or any other
agreement entered  into by the Company and such Creditor Party relating hereto. 
            9.       Exercise of Warrant; Cancellation of Warrant.             
          9.1     Mechanics of Exercise. Provided the Warrant Shares are
included in an  effective registration statement or are otherwise exempt from
registration when sold,                                  (a)      Provided such
Purchaser has notified the Company of such            Purchaser’s intention to
sell: (i) upon the exercise of the applicable Warrant or part           
thereof, the Company shall, at its own cost and expense, take all necessary
action            (including the issuance of an opinion of counsel reasonably
acceptable to such Purchaser            following a request by such Purchaser)
to assure that the Company’s transfer agent shall            issue shares of the
Common Stock in the name of such Purchaser (or its nominee) or such      31

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          other Persons as designated by such Purchaser in accordance with
Section 9.1(b) hereof            and in such denominations to be specified
representing the number of Warrant Shares            issuable upon such
exercise; and (ii) the Company warrants that no instructions other           
than these instructions have been or will be given to the transfer agent of the
Common            Stock and that the applicable Warrant Shares issued will be
freely transferable, subject to            the prospectus delivery requirements
of the Securities Act if the Warrant Shares are            included in an
effective registration statement and the provisions of this Agreement, and     
      will not contain a legend restricting the resale or transferability of the
Warrant Shares.                                  (b)      Such Purchaser will
give notice of its decision to exercise its right            to exercise the
applicable Warrant or part thereof by telecopying or otherwise delivering       
    an executed and completed notice of the number of shares to be exercised to
the            Company (the “Form of Subscription”) and by either remitting
payment to the Company            for the purchase of the Warrant Shares or
electing the cashless exercise provisions of the            applicable Warrant.
Such Purchaser will not be required to surrender the applicable           
Warrant until such Purchaser receives a credit to the account of the Purchaser’s
prime            broker through the DWAC system (as defined below), representing
all the Warrant            Shares issuable under the Warrant. Each date on which
a Form of Subscription is            telecopied or delivered to the Company in
accordance with the provisions hereof shall be            deemed an “Exercise
Date.” Pursuant to the terms of the Form of Subscription, the            Company
will issue instructions to the transfer agent accompanied by an opinion of     
      counsel within one (1) business day of the date of the delivery to the
Company of the            Form of Subscription and shall cause the transfer
agent to transmit the certificates            representing the Warrant Shares
set forth in the applicable Form of Subscription to the            Holder by
crediting the account of such Purchaser’s prime broker with the Depository     
      Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission
(“DWAC”)            system within three (3) business days after receipt by the
Company of the Form of            Subscription (the “Delivery Date”).           
                      (c)      The Company understands that a delay in the
delivery of the            Warrant Shares in the form required pursuant to
Section 9 hereof beyond the Delivery            Date could result in economic
loss to such Purchaser. In the event that the Company fails            to direct
its transfer agent to deliver the applicable Warrant Shares to such Purchaser
via            the DWAC system within the time frame set forth in Section 9.1(b)
above and the            applicable Warrant Shares are not delivered to such
Purchaser by the Delivery Date, as            compensation to such Purchaser for
such loss, the Company agrees to pay late payments            to such Purchaser
for late issuance of the applicable Warrant Shares in the form required         
  pursuant to Section 9 hereof upon exercise of the applicable Warrant in the
amount equal            to the greater of: (i) $500 per business day after the
Delivery Date; or (ii) such            Purchaser’s actual damages from such
delayed delivery. The Company shall pay any            payments incurred under
this Section in immediately available funds upon demand and,            in the
case of actual damages, accompanied by reasonable documentation of the amount   
        of such damages. Such documentation shall show the number of shares of
Common            Stock such Purchaser is forced to purchase (in an open market
transaction) which such            Purchaser anticipated receiving upon such
exercise, and shall be calculated as the amount            by which (A) such
Purchaser’s total purchase price (including customary brokerage           
commissions, if any) for the shares of Common Stock so purchased exceeds (B)
the      32

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          aggregate exercise price of the applicable Warrant, for which such
Form of Subscription            was not timely honored.                        
9.2     Warrant Cancellations.                                        (a)     
If the Company’s Operating Cash Flow (as defined below) for any            two
(2) consecutive months during the thirteen (13) month period following the
Closing            Date is greater than $0 (as reflected in the Company’s
financial statements delivered in            accordance with Section 6.4), then
Warrants A-2 and B-2 (as more fully described on            Schedule II) shall
automatically, and without the requirement of any further action by any         
  party, be cancelled and terminated.                                       
(b)      If, prior to the second anniversary of the Closing Date, the           
Company repays the Obligations, then both Warrants A-3 and B-3 (as more fully   
        described on Schedule II) shall automatically, and without the
requirement of any further            action by any party, be cancelled and
terminated.                                      (c)      For purposes of this
Agreement, “Operating Cash Flow” shall            mean net cash flow from
operations according to GAAP as it appears on the Company's            cash flow
statement delivered to Agent in accordance with Section 6.4.                   
                (d)      Upon cancellation of any Warrant, the Purchaser then
holding such            Warrants shall cause the original of such Warrants to be
returned to the Company.              10.    Offering Restrictions. Except as
previously disclosed in the SEC Reports or in  the Exchange Act Filings, or
stock or stock options granted to employees or directors of the  Company (these
exceptions hereinafter referred to as the “Excepted Issuances”), neither the 
Company nor any of its Subsidiaries will, prior to the full exercise by the
Purchasers of the  Warrants, (x) enter into any equity line of credit agreement
or similar agreement or (y) issue, or  enter into any agreement to issue, any
securities with a variable/floating conversion and/or  pricing feature which are
or could be (by conversion or registration) free-trading securities (i.e. 
common stock subject to a registration statement).                   
11.     Miscellaneous.                              11.1    Governing Law,
Jurisdiction and Waiver of Jury Trial.                                   
(a)      THIS AGREEMENT  AND THE  OTHER  RELATED            AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED            IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK            APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE,            WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.       
                            (b)      THE COMPANY HEREBY CONSENTS AND AGREES
THAT            THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW       
    YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO            HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE            COMPANY, ON THE ONE
HAND, AND ANY CREDITOR PARTY, ON THE      33

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          OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE           
RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR            RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER RELATED            AGREEMENTS; PROVIDED, THAT EACH
CREDITOR PARTY AND THE            COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS            MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
COUNTY            OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT,   
        NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO           
PRECLUDE ANY CREDITOR PARTY FROM BRINGING SUIT OR TAKING            OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE            OBLIGATIONS, TO
REALIZE ON THE COLLATERAL (AS DEFINED IN THE            MASTER SECURITY
AGREEMENT) OR ANY OTHER SECURITY FOR THE            OBLIGATIONS (AS DEFINED IN
THE MASTER SECURITY AGREEMENT), OR            TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF ANY            CREDITOR PARTY. THE COMPANY EXPRESSLY
SUBMITS AND CONSENTS            IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT            COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES     
      ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL           
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE            COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,            COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT            AND AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINT AND OTHER            PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED            TO THE COMPANY AT THE ADDRESS SET FORTH
IN SECTION 11.8 AND            THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE            EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE
(3)            DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.   
                              (c)      THE PARTIES DESIRE THAT THEIR DISPUTES
BE            RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,     
      TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL           
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS            TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO            RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR            OTHERWISE BETWEEN
ANY CREDITOR PARTY AND/OR THE COMPANY            ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE            RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS            AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE
TRANSACTIONS            RELATED HERETO OR THERETO.                       
11.2   Severability. Wherever possible each provision of this Agreement and the 
Related Agreements shall be interpreted in such manner as to be effective and
valid under  applicable law, but if any provision of this Agreement or any
Related Agreement shall be  prohibited by or invalid or illegal under applicable
law such provision shall be ineffective to the  extent of such prohibition or
invalidity or illegality, without invalidating the remainder of such  provision
or the remaining provisions thereof which shall not in any way be affected or
impaired  thereby.      34

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                    11.3   Survival. The representations, warranties, covenants
and agreements  made herein shall survive any investigation made by any Creditor
Party and the closing of the  transactions contemplated hereby to the extent
provided therein. All statements as to factual  matters contained in any
certificate or other instrument delivered by or on behalf of the Company 
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be  representations and warranties by the Company hereunder solely as
of the date of such certificate  or instrument. All indemnities set forth herein
shall survive the execution, delivery and  termination of this Agreement and the
Notes and the making and repayment of the obligations  arising hereunder, under
the Notes and under the other Related Agreements.                        11.4  
Successors.                                  (a)      Except as otherwise
expressly provided herein, the provisions            hereof shall inure to the
benefit of, and be binding upon, the successors, heirs, executors            and
administrators of the parties hereto and shall inure to the benefit of and be   
        enforceable by each person or entity which shall be a holder of the
Securities from time            to time, other than the holders of Common Stock
which has been sold by any Purchaser            pursuant to Rule 144 or an
effective registration statement. Each Purchaser may assign            any or
all of the Obligations to any Person and, subject to acceptance and recordation 
          thereof by the Agent pursuant to Section 11.4(b) and receipt by the
Agent of a copy of the            agreement or instrument pursuant to which such
assignment is made (each such            agreement or instrument, an “Assignment
Agreement”), any such assignee shall succeed            to all of such
Purchaser’s rights with respect thereto; provided that no Purchaser shall be   
        permitted to assign its rights hereunder or under any Related Agreement
to a competitor            of the Company unless an Event of Default (as defined
in each Note) has occurred and is            continuing.  Upon such assignment,
such Purchaser shall be released from all            responsibility for the
Collateral (as defined in the Master Security Agreement, the Stock           
Pledge Agreement and each other security agreement, mortgage, cash collateral
deposit            letter, pledge and other agreements which are executed by the
Company or any of its            Subsidiaries in favor of any Creditor Party) to
the extent same is assigned to any            transferee. Each Purchaser may
from time to time sell or otherwise grant participations            in any of
the Obligations (as defined in the Master Security Agreement) and the holder of 
          any such participation shall, subject to the terms of any agreement
between such            Purchaser and such holder, be entitled to the same
benefits as such Purchaser with respect            to any security for the
Obligations (as defined in the Master Security Agreement) in            which
such holder is a participant. The Company agrees that each such holder may     
      exercise any and all rights of banker’s lien, set-off and counterclaim
with respect to its            participation in the Obligations (as defined in
the Master Security Agreement) as fully as            though the Company were
directly indebted to such holder in the amount of such            participation.
The Company may not assign any of its rights or obligations hereunder           
without the prior written consent of the Agent. All of the terms, conditions,
promises,            covenants, provisions and warranties of this Agreement
shall inure to the benefit of each            of the undersigned, and shall bind
the representatives, successors and permitted assigns of            the
Company.                                    (b)      The Agent shall maintain,
or cause to be maintained, for this            purpose only as agent of the
Company, (i) a copy of each Assignment Agreement      35

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          delivered to it and (ii) a registry within the meaning of US Treasury
Regulation Section            15f.103-1(c) (the “Register”), in which it will
register the name and address of each            Purchaser and the name and
address of each assignee of each Purchaser under this            Agreement, and
the principal amount of the Notes owing to each such Purchase pursuant         
  to the terms hereof and each Assignment Agreement. The Company and each
Creditor            Party shall treat each Person whose name is recorded in the
Register as a Purchaser            pursuant to the terms hereof as a Purchaser
hereunder for all purposes of this Agreement,            notwithstanding notice
to the contrary or any notation of ownership or other writing or            any
Note. The Register shall be available for inspection by the Company or any     
      Purchaser, at any reasonable time and from time to time, upon reasonable
prior notice.                        11.5   Entire Agreement; Maximum Interest.
This Agreement, the Related  Agreements, the exhibits and schedules hereto and
thereto and the other documents delivered  pursuant hereto constitute the full
and entire understanding and agreement between the parties  with regard to the
subjects hereof and no party shall be liable or bound to any other in any 
manner by any representations, warranties, covenants and agreements except as
specifically set  forth herein and therein. Nothing contained in this Agreement,
any Related Agreement or in any  document referred to herein or delivered in
connection herewith shall be deemed to establish or  require the payment of a
rate of interest or other charges in excess of the maximum rate  permitted by
applicable law.  In the event that the rate of interest or dividends required to
be paid  or other charges hereunder exceed the maximum rate permitted by such
law, any payments in  excess of such maximum shall be credited against amounts
owed by the Company to the  Purchasers and thus refunded to the Company.       
                11.6   Amendment and Waiver.                                 
(a)      This Agreement may be amended or modified only upon the               
     written consent of the Company and the Agent.                             
    (b)      The obligations of the Company and the rights of the Creditor     
               Parties under this Agreement may be waived only with the written
consent of the Agent.                                  (c)      The obligations
of the Creditor Parties and the rights of the  Company under this Agreement may
be waived only with the written consent of the                     Company.     
                    11.7   Delays or Omissions. It is agreed that no delay or
omission to exercise  any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by  another party under this Agreement or the
Related Agreements, shall impair any such right,  power or remedy, nor shall it
be construed to be a waiver of any such breach, default or  noncompliance, or
any acquiescence therein, or of or in any similar breach, default or 
noncompliance thereafter occurring. All remedies, either under this Agreement or
the Related  Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.                        11.8   Notices. All
notices required or permitted hereunder shall be in writing  and shall be deemed
effectively given:                                  (a)      upon personal
delivery to the party to be notified;      36

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                              (b)      when sent by confirmed facsimile if sent
during normal business            hours of the recipient, if not, then on the
next business day;                                  (c)      three (3) business
days after having been sent by registered or            certified mail, return
receipt requested, postage prepaid; or                                  (d)    
 one (1) day after deposit with a nationally recognized overnight           
courier, specifying next day delivery, with written verification of receipt.   
All communications shall be sent as follows:                          If to the
Company, to:                        eLEC Communications Corp.                   
          75 South Broadway, Suite 302                              White
Plains, NY 10601                              Attention:   Chief Executive
Officer                              Facsimile:   914-682-0820                 
      with a copy to:                        Pryor Cashman LLP                 
            410 Park Avenue                              New York, NY 10022     
                        Attention:   Eric M. Hellige, Esq.                     
        Facsimile:   212-798-6380                        If to the Agent, to:   
                    LV Administrative Services, Inc.                           
  335 Madison Avenue, 10th Floor                              New York, NY
10017                              Facsimile No.: 212-581-5037                 
      with a copy to:                        Loeb & Loeb, LLP                   
          345 Park Avenue                              New York, NY 10154       
                      Attention:        Scott J. Giordano, Esq.                 
            Facsimile No.: 212-407-4990                        If to a
Purchaser:                        To the address indicated under its signature 
                            on the signature pages hereto    or at such other
address as the Company or the applicable Creditor Party may designate by 
written notice to the other parties hereto given in accordance herewith.       
                11.9   Attorneys’ Fees.  In the event that any suit or action is
instituted to enforce  any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute  shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any  right of such
prevailing party under or with respect to this Agreement and/or such Related 
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and  accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.      37

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                    11.10   Titles and Subtitles. The titles of the sections and
subsections of this  Agreement are for convenience of reference only and are not
to be considered in construing this  Agreement.                          11.11  
Facsimile Signatures; Counterparts. This Agreement may be executed by  facsimile
signatures and in any number of counterparts, each of which shall be an
original, but all  of which together shall constitute one agreement.           
            11.12   Broker’s Fees. Except as set forth on Schedule 11.12 hereof,
each party  hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on  behalf of or under the authority of such party
hereto is or will be entitled to any broker’s or  finder’s fee or any other
commission directly or indirectly in connection with the transactions 
contemplated herein. Each party hereto further agrees to indemnify each other
party for any  claims, losses or expenses incurred by such other party as a
result of the representation in this  Section 11.12 being untrue.               
        11.13   Construction. Each party acknowledges that its legal counsel
participated  in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that  the rule of construction that ambiguities are
to be resolved against the drafting party shall not be  applied in the
interpretation of this Agreement or any Related Agreement to favor any party 
against the other.                        11.14   Agency. Each Purchaser has
pursuant to an Administrative and Collateral  Agency Agreement designated and
appointed the Agent as the administrative and collateral agent  of such
Purchaser under this Agreement and the Related Agreements.    [THE REMAINDER OF
THIS PAGE IS INTENTIONALLY LEFT BLANK]     38

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          IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES 
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.   
COMPANY:    PURCHASER:      eLEC COMMUNICATIONS CORP.    CALLIOPE CAPITAL
CORPORATION      By:   /s/ Paul H. Riss   By:   /s/ Pat Regan            Name:
Paul H. Riss               Name: Pat Regan            Title: Chief Executive
Officer               Title: Senior Managing Director         AGENT:   
PURCHASER:      LV ADMINISTRATIVE SERVICES, INC.,    VALENS OFFSHORE SPV II.
CORP.  as Agent          By:   /s/ Pat Regan   By:   /s/ Pat Regan         
  Name: Pat Regan              Name: Pat Regan            Title: Senior Managing
Director              Title: Authorized Signatory

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