pv101.htm


    
      

      

    

    Exhibit
10.1

     

     

     

     

     

     

    SECURITIES PURCHASE
AGREEMENT

     

    LV
ADMINISTRATIVE SERVICES, INC.,

     

    as
Administrative and Collateral Agent

     

    THE
PURCHASERS

     

    From
Time to Time Party Hereto

     

    and

     

    PERVASIP
CORP.

     

    Dated:
May ___, 2008

     

     

     

     

     

    



    
      
         


      

      
        
        

        
          

        

      

      
         


        
           

        

      

    

    
      TABLE OF
CONTENTS

      


      
        	 
      	 
      	
                PAGE

              
	 
      	 
      	 
      
	
                1.

              	
                Agreement
      to Sell and Purchase

              	
                4

              
	 
      	 
      	 
      
	
                2.

              	
                Fees

              	
                4

              
	 
      	 
      	 
      
	
                3.

              	
                Closing,
      Delivery and Payment

              	
                4

              
	 
      	
                3.2  Closing

              	
                4

              
	 
      	
                3.2  Delivery

              	
                4

              
	 
      	
                3.3  Note
      Funding

              	
                4

              
	 
      	 
      	 
      
	
                4.

              	
                Representations and Warranties of the Company

              	
                5

              
	 
      	
                4.1  Organization,
      Good Standing and Qualification

              	
                5

              
	 
      	
                4.2  Subsidiaries

              	
                6

              
	 
      	
                4.3  Capitalization;
      Voting Rights

              	
                6

              
	 
      	
                4.4  Authorization;
      Binding Obligations

              	
                6

              
	 
      	
                4.5  Liabilities;
      Solvency

              	
                6

              
	 
      	
                4.6  Agreements;
      Action

              	
                7

              
	 
      	
                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

              	
                9

              
	 
      	
                4.11
      Compliance with Other Instruments

              	
                9

              
	 
      	
                4.12
      Litigation

              	
                10

              
	 
      	
                4.13
      Tax Returns and Payments

              	
                10

              
	 
      	
                4.14
      Employees

              	
                10

              
	 
      	
                4.15
      Registration Rights and Voting Rights

              	
                10

              
	 
      	
                4.16
      Compliance with Laws; Permits

              	
                10

              
	 
      	
                4.17
      Environmental and Safety Laws

              	
                11

              
	 
      	
                4.18
      Valid Offering

              	
                11

              
	 
      	
                4.19
      Full Disclosure

              	
                11

              
	 
      	
                4.20
      Insurance

              	
                11

              
	 
      	
                4.21
      SEC Reports

              	
                11

              
	 
      	
                4.22
      Listing

              	
                11

              
	 
      	
                4.23
      No Integrated Offering

              	
                11

              
	 
      	
                4.24
      Stop Transfer

              	
                12

              
	 
      	
                4.25
      Intentionally Omitted

              	
                12

              
	 
      	
                4.26
      Patriot Act

              	
                12

              
	 
      	
                4.27
      ERISA

              	
                12

              
	 
      	 
      	 
      
	
                5.

              	
                Representations
      and Warranties of each Purchaser

              	
                12

              
	 
      	
                5.1  No
      Shorting

              	
                12

              
	 
      	
                5.2  Requisite
      Power and Authority

              	
                12

              
	 
      	
                5.3  Investment
      Representations

              	
                12

              
	 
      	
                5.4  The
      Purchaser Bears Economic Risk

              	
                13

              
	 
      	
                5.5  Acquisition
      for Own Account

              	
                13

              
	 
      	
                5.6  The
      Purchaser Can Protect Its Interest

              	
                13

              
	 
      	
                5.7  Accredited
      Investor

              	
                13

              
	 
      	
                5.8  Legends

              	
                13

              
	 
      	 
      	 
      
	
                6.

              	
                Covenants
      of the Company

              	
                13

              
	 
      	
                6.1  Stop-Orders

              	
                13

              
	 
      	
                6.2  Listing

              	
                13

              
	 
      	
                6.3  Market
      Regulations

              	
                13

              
	 
      	
                6.4  Reporting
      Requirements

              	
                13

              
	 
      	
                6.5  Use
      of Funds

              	
                14

              
	 
      	
                6.6  Access
      to Facilities

              	
                14

              
	 
      	
                6.7  Taxes

              	
                14

              
	 
      	
                6.8  Insurance

              	
                15

              
	 
      	
                6.9  Intellectual
      Property

              	
                16

              
	 
      	
                6.10
      Properties

              	
                16

              
	 
      	
                6.11
      Confidentiality

              	
                16

              
	 
      	
                6.12
      Required Approvals

              	
                16

              
	 
      	
                6.13
      Reissuance of Notes

              	
                17

              
	 
      	
                6.14
      Opinion

              	
                18

              
	 
      	
                6.15
      Margin Stock

              	
                18

              
	 
      	
                6.16
      FIRPTA

              	
                18

              
	 
      	
                6.17
      Multiple Funding Disclosure

              	
                18

              
	 
      	
                6.18
      No Restrictions on Additional Financing

              	
                18

              
	 
      	
                6.19
      Intentionally Omitted

              	
                18

              
	 
      	
                6.20
      Intentionally Omitted

              	
                18

              
	 
      	
                6.21
      Board Observation Rights

              	
                18

              
	 
      	
                6.22
      Share Increase

              	
                18

              
	 
      	 
      	 
      
	
                7.

              	
                Covenants
      of the Purchasers

              	
                18

              
	 
      	
                7.1  Confidentiality

              	
                18

              
	 
      	
                7.2  Non-Public
      Information

              	
                18

              
	 
      	
                7.3  Limitation
      on Acquisition of Common Stock of the Company

              	
                19

              
	 
      	 
      	 
      
	
                8.

              	
                Covenants
      of the Company and the Purchasers Regarding
Indemnification

              	
                19

              
	 
      	
                8.1  Company
      Indemnification

              	
                19

              
	 
      	
                8.2  Purchaser
      Indemnification

              	
                19

              
	 
      	 
      	 
      
	
                9.

              	
                Intentionally
      Omitted

              	
                19

              
	 
      	 
      	 
      
	
                10.

              	
                Offering
      Restrictions

              	
                19

              
	 
      	 
      	 
      
	
                11.

              	
                Miscellaneous

              	
                19

              
	 
      	
                11.1  Governing
      Law, Jurisdiction and Waiver of Jury Trial

              	
                19

              
	 
      	
                11.2  Severability

              	
                20

              
	 
      	
                11.3  Survival

              	
                20

              
	 
      	
                11.4  Successors

              	
                20

              
	 
      	
                11.5  Entire
      Agreement; Maximum Interest

              	
                20

              
	 
      	
                11.6  Amendment
      and Waiver

              	
                20

              
	 
      	
                11.7  Delays
      or Omissions

              	
                21

              
	 
      	
                11.8  Notices

              	
                21

              
	 
      	
                11.9  Attorneys’
      Fees

              	
                21

              
	 
      	
                11.10
      Titles and Subtitles

              	
                21

              
	 
      	
                11.11
      Facsimile Signatures; Counterparts

              	
                21

              
	 
      	
                11.12
      Brokers’ Fees

              	
                21

              
	 
      	
                11.13
      Construction

              	
                22

              
	 
      	
                11.14
      Agency

              	
                22

              


      

       

    

    
      
        
           


        

        
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    LIST
OF EXHIBITS

    
 

    
      
        	
                Form
      of Term Note

              	
                Exhibit
      A

              
	
                Form
      of Opinion

              	
                Exhibit
      B

              
	
                Form
      of Escrow Agreement

              	
                Exhibit
      C

              
	
                Form
      of Budget

              	
                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

            


    

     

    



    
      
         


      

      
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    SECURITIES
PURCHASE AGREEMENT

     

    THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made
and entered into as of May 28, 2008, among PERVASIP 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,
each Purchaser desires to purchase the applicable Note on the terms and
conditions set forth herein; and

     

    WHEREAS,
the Company desires to issue and sell the applicable Note 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).

     

    2. Fees.  On
the Closing Date:

     

    (a) Subject
to the terms of Section 2(b) below, the Company shall pay (i) to Valens Capital
Management, LLC, the investment manager of the Purchasers (“VCM”), a
non-refundable payment in an aggregate amount equal to $21,000; (ii) to the
Purchasers, a non-refundable payment in an aggregate amount equal to $14,000;
and (iii) to the Purchasers, an advance prepayment discount deposit in an
aggregate amount equal to $14,000.  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.

     

    (b) The
payments and the expenses referred to in the preceding clause (a) (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 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. 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.

     

    3.3 Note Funding. On the
Closing Date, each Purchaser shall make an advance equal to its Commitment
Percentage (as hereinafter defined) of $300,000.  After the Closing
Date and subject to the satisfaction of the Note Funding Conditions (as
hereinafter defined), the Company may request, no more frequently than monthly,
a funding of the Notes by notice to the Agent (each  “Notice of Borrowing”)
not later than 11:00 a.m., New York time, on the Business Day prior to the
requested date of disbursement.  Each Notice of Borrowing shall be
made in writing.  Upon receipt of any such Notice of Borrowing, the
Agent shall promptly notify each Purchaser thereof.  Each Purchaser
will make the amount of its Commitment Percentage of each requested advance
available to the Agent for the account of the Company prior to 12:00 Noon, New
York City time, on the advance date requested by the Company in funds
immediately available to the Agent.  Such advance will then be made
available to the Company by the Agent by making available to the account
notified by the Company in accordance with the Notice of Borrowing.

     

    
      
        
        

      

      
        - 4
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    As used
in this Section
3.3, 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):

     

    “Commitment
Percentage” means, as to each Purchaser, the quotient of (a) the amount of the
Notes to be purchased by such Purchaser as set forth in Schedule I hereto
divided by (b) $1,400,000.

     

    “Note
Funding Conditions” means satisfaction of each of the following conditions all
in a manner satisfactory to Agent: (i) the representations and warranties made
by the Company in this Agreement and each other Related Agreement are true and
correct as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties were true and correct as of such date;
(ii) no Event of Default (as defined in each Note) is continuing on such date or
after giving effect to such advance; and (iii) the overall performance of the
Company at such time shall have been met or exceeded and the amount of such
requested advance shall not exceed the projected borrowing amount, in each case
as set forth in the proposed budget attached hereto as Exhibit
D.

     

    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,
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 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 C hereto (as
amended, restated, modified and/or supplemented from time to time, the “Escrow Agreement”)
and (vii) all other documents, instruments and agreements entered into in
connection with the transactions contemplated hereby and thereby (the preceding
clauses (ii) through (vii), collectively, the “Related Agreements”);
(2) issue and sell the Notes; and (3) 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 than in respect of AVI
Holdings, capitalized lease obligations not to exceed $43,000, 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).

     

    
      
        
        

      

      
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    4.3 Capitalization; Voting
Rights.

     

    (a) The
authorized capital stock of the Company, as of the date hereof consists of
151,000,000 shares, of which 150,000,000 are shares of Common Stock, par value
$0.10 per share (the “Common Stock”),
25,835,485 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 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”).  When
issued in compliance with the provisions of this Agreement and the Company’s
Charter, the Notes will be validly issued, fully paid and non-assessable, and
will be free of any liens or encumbrances; provided, however, that the
Notes 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 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.

     

    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 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.

     

    
      
        
        

      

      
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    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, 2007 (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,
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 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.

     

    
      
        
        

      

      
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    Except as
described above, in the Company’s Exchange Act Filings 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;

     

    (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.

     

    
      
        
        

      

      
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    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;

     

    (b) those in
favor of Laurus Master Fund, Ltd. and/or its assignees;

     

    (c) those
resulting from taxes which have not yet become delinquent;

     

    (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.

     

    (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, 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.

     

    
      
        
        

      

      
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    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

     

    (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.

     

    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 Notes, 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.

     

    
      
        
        

      

      
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    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, 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 Notes 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, 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, 2007; and (ii) its Quarterly Reports on Form 10-Q for
its fiscal quarter ended February 28, 2008, and the Form  8-K filings which
it has made during the fiscal year ending November 30, 2008 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 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 Notes 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 Notes 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 Notes to be integrated with other
offerings.

     

    
      
        
        

      

      
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    4.24 Stop
Transfer.  The Notes 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 Notes at such time as the Notes are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.

     

    4.25 Intentionally
Omitted.

     

    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 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:

     

    (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 Notes 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 to be purchased
by it under this Agreement.  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 and the Notes 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.

     

    
      
        
        

      

      
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    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 Notes 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 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 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.

     

    5.8 Legends.  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.”

     

    6. Covenants of the
Company.  The Company covenants and agrees with each Creditor
Party as follows:

     

    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 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 Financial Industry Regulatory Agency (“FINRA”) and such
exchanges, as applicable.

     

    6.3 Market
Regulations.  The Company shall notify the SEC, FINRA 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 Note 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 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;

     

    
      
        
        

      

      
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    (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 for general working capital purposes only.

     

    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
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).

     

    
      
        
        

      

      
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    (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.

     

    (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 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.

     

    
      
        
        

      

      
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    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 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 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;

     

    
      
        
        

      

      
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    (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 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

     

    (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
Notes.  The Company agrees to reissue certificates representing
the Note without the legends set forth in Section 5.8 above at
such time as:

     

    (a) the
holder thereof is permitted to dispose of such Notes pursuant to Rule 144 under
the Securities Act; or

     

    (b) upon
resale subject to an effective registration statement after such Notes are
registered under the Securities Act.

     

    The
Company agrees to cooperate with the Purchasers in connection with all resales
pursuant to Rule 144 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.

     

    
      
        
        

      

      
        - 17
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    6.14 Opinion.  On
the Closing Date, the Company will deliver to the Creditor Parties an opinion
substantially in the form of Exhibit B hereto
acceptable to the Agent from the Company’s external legal counsel.

     

    6.15 Margin
Stock.  The Company will not permit any of the proceeds of the
Notes 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.

     

    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 Multiple Funding
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 will not
be funded on the date hereof and for which funding 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 terms and
conditions relating to the release of proceeds described 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 Intentionally
Omitted.

     

    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 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 August 15, 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.

     

    
      
        
        

      

      
        - 18
-

        
          

        

      

      
        
        

      

       

    

    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 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 with respect to a Purchaser, without any
notice to the Company, on and after the first date upon which such Purchaser and
each of its Affiliates which qualify as a Non-U.S. Purchaser no longer owns any
indebtedness (including, without limitation, principal, interest, fees and
charges) of the Company.

     

    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. Intentionally
Omitted.

     

    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 payment in full of the Obligations, (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 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.

     

    
      
        
        

      

      
        - 19
-

        
          

        

      

      
        
        

      

       

       

    

    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.

     

    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 Notes 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.  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 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.

     

    
      
        
        

      

      
        - 20
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    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;

     

    (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:

            	
              Pervasip
      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.

     

    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.

     

    
      
        
        

      

      
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    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.

     

     

     

     

     

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REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

     

    


     

    



    
      
         


      

      
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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:

            
	 	 
	
              PERVASIP
      CORP.

            	
              VALENS
      OFFSHORE SPV II. CORP.

            
	 	 
	
              By: /s/ Paul
      H. Riss

              Name:
      Paul H. Riss

              Title:
      Chief Executive Officer

            	
              By: /s/
      Patrick Regan

              Name:
      Patrick Regan

              Title:
      Authorized Signatory

            
	 	 
	 
      	
              Address
      for Notices:

            
	 	 
	 	 
	 	 
	 	 
	
              AGENT:

            	 
      
	 	 
	
              LV
      ADMINISTRATIVE SERVICES, INC.,

              as
      Agent

            	 
      
	 	 
	
              By: /s/
      Patrick Regan

              Name:
      Patrick Regan

              Title:
      Authorized Signatory

            	 
      
	 	 
	
              Address
      for Notices:

            	 
      
	 	 
	 	 
	 	 


    

     

    



    
      
         


      

      
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