WWW.EXFILE.COM, INC. -- 13922 -- DSL.NET, INC. -- EXHIBIT 10.1 TO FORM 10-Q


    

      


      EXHIBIT
        10.1


      SECURITIES
        PURCHASE AGREEMENT

       

      This
        Securities Purchase Agreement (this “Agreement”)
        is
        dated as of November 2, 2005 among DSL.net, Inc., a Delaware corporation
        (the
“Company”),
        and
        each purchaser identified on the signature pages hereto (each, including
        its
        successors and assigns, a “Purchaser”
        and
        collectively the “Purchasers”).

       

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

       

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

       

       

      ARTICLE
        I.

      DEFINITIONS

       

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

       

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

       

      “Affiliate”
        means
        any Person that, directly or indirectly through one or more intermediaries,
        controls or is controlled by or is under common control with a Person, as
        such
        terms are used in and construed under Rule 144 under the Securities
        Act.
        With
        respect to a Purchaser, any investment fund or managed account that is managed
        on a discretionary basis by the same investment manager as such Purchaser
        will
        be deemed to be an Affiliate of such Purchaser.

       

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

       

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

       

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

       

      “Commission”
        means
        the Securities and Exchange Commission.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      “Common
        Stock”
        means
        the common stock of the Company, par value $0.0005 per share, and any other
        class of securities into which such securities may hereafter have been
        reclassified or changed into.

       

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

       

      “Company
        Counsel”
        means
        Palmer and Dodge LLP.

       

      “Debentures”
        means,
        the 18% Secured Debentures due, subject to the terms therein, on August 2,
        2006,
        issued by the Company to the Purchasers hereunder, in the form of Exhibit
        B.

       

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

       

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

       

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

      


      “Exempt
        Issuance”
        means
        the issuance of (a) shares of Common Stock or options to employees, officers
        or
        directors of the Company and its Subsidiaries pursuant to any stock or option
        plan duly adopted by the Board, (b) securities upon the exercise or exchange
        of
        or conversion of any securities exercisable or exchangeable for or convertible
        into shares of Common Stock issued and outstanding on the date of this Agreement
        (and the securities into which such securities are so exercisable or
        exchangeable or convertible), provided that such securities have not been
        amended since the date of this Agreement to increase the number of such
        securities or to decrease the exercise, exchange or conversion price of any
        such
        securities, (c) securities issued pursuant to acquisitions or strategic
        transactions, provided any such issuance shall only be to a Person which
        is,
        itself or through its subsidiaries, in the determination of the Board, an
        operating company in a business synergistic with the business of the Company
        and
        in which the Company receives benefits in addition to the investment of funds,
        but shall not include a transaction in which the Company is issuing securities
        primarily for the purpose of raising capital or to an entity whose primary
        business is investing in securities (other than as permitted in subsection
        (f)
        below), (d) shares of Common Stock in a firm commitment public offering of
        at
        least $45 million underwritten by a reputable, nationally recognized investment
        bank, (e) shares of Common Stock issued or issuable pursuant to (1) stock
        splits, combinations and the like and securities issued pursuant to economic
        anti-dilution rights held by Company security holders or (2) equipment lease
        financings or bank credit arrangements entered into for primarily non-equity
        financing purposes approved by the Board and (f) securities issued by the
        Company the proceeds of 

       

      
        
          
          

        

        
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      which
        are
        used to pay in full all principal, interest and other amounts then due and
        owing
        under the Debentures.

      


      “FW”
        means
        Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite
        2620,
        New York, New York 10170-0002.

       

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

       

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

       

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

       

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

       

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

       

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

       

      “Participation
        Maximum”
        shall
        have the meaning ascribed to such term in Section 4.10. 

       

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

       

      “Pre-Notice”
        shall
        have the meaning ascribed to such term in Section 4.10. 

       

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

       

      “Purchaser
        Party”
        shall
        have the meaning ascribed to such term in Section 4.09.

       

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

       

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

       

      “Securities
        Act”
        means
        the Securities Act of 1933, as amended. 

       

      “Security
        Agreement”
        means
        the Agency, Guaranty and Security Agreement, dated the date hereof, among
        the
        Company, the Subsidiaries listed on Schedule
        I
        thereto,


       

      
        
          
          

        

        
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      the
        Purchasers and the Administrative Agent named therein, in the form of
Exhibit
        D
        attached
        hereto.

      


      “Security
        Documents”
        shall
        mean the Security Agreement and any other documents and filing required
        thereunder in order to grant the Purchasers a first priority security interest,
        subject only to the Permitted Liens (as defined in the Debenture), in the
        assets
        of the Company as provided in the Security Agreement, including all UCC-1
        filing
        receipts.

      


      “Short
        Sales”
        shall
        include all “short sales” as defined in Rule 200 of Regulation SHO under the
        Exchange Act.

       

      “Subordination
        Agreement”
        means
        that certain subordination agreement by and between Purchaser and Laurus
        Master
        Fund, Ltd. (“Laurus”).

       

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

       

      “Subsequent
        Financing”
        shall
        have the meaning ascribed to such term in Section 4.10.

       

      “Subsequent
        Financing Notice”
        shall
        have the meaning ascribed to such term in Section 4.10. 

       

      “Subsidiary”
        means
        any subsidiary of the Company as set forth on Schedule
        3.1(a).

       

      “Trading
        Day”
        means a
        day on which the Common Stock is traded on a Trading Market.

       

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

       

      “Transaction
        Documents”
        means
        this Agreement, the Debentures, the Security Agreement, the Security Documents,
        the Subordination Agreement and any other documents or agreements executed
        in
        connection with the transactions contemplated hereunder. 

       

       

      ARTICLE
        II.

      PURCHASE
        AND SALE

       

      2.1  Closing.
        On the
        Closing Date, upon the terms and subject to the conditions set 

       

      
        
          
          

        

        
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      forth
        herein, concurrent with the execution and delivery of this Agreement by the
        parties hereto, the Company agrees to sell, and each Purchaser agrees to
        purchase in the aggregate, severally and not jointly, $8,000,000 principal
        amount of the Debentures for an aggregate purchase price of $6,000,000. Each
        Purchaser shall deliver to the Company via wire transfer or a certified check
        immediately available funds equal to their Subscription Amount and the Company
        shall deliver to each Purchaser their respective Debenture as determined
        pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable
        at the Closing. Upon satisfaction of the conditions set forth in Sections
        2.2
        and 2.3, the Closing shall occur at the offices of FW, or such other location
        as
        the parties shall mutually agree.

       

      2.2  Deliveries

       

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

       

      (i)     
        this
        Agreement duly executed by the Company;

       

      (ii)  a
        legal
        opinion of Company Counsel, in the form of Exhibit
        F
        attached
        hereto; 

       

      (iii)  a
        Debenture with a principal amount equal to one hundred thirty three and
        one-third percent (133 1/3%) of such Purchaser’s Subscription Amount, registered
        in the name of such Purchaser; 

       

      (iv)  the
        Subordination Agreement duly executed by the Company;

       

      (v)  the
        Security Agreement, duly executed by the Company, along with all the Security
        Documents to which the Company is a party duly executed by the
        Company;

       

      (vi)  written
        consent to the transaction contemplated hereunder from Laurus Master Fund,
        Ltd.
        in form and substance reasonably satisfactory to the Purchasers;

       

      (vii)  a
        summary
        copy of the final, written report of the Company’s financial advisor (Broadview
        International, a division of Jeffries & Company, Inc. (“Broadview”)),
        submitted in writing by Broadview to the Board at the Board’s meeting
        authorizing the transactions contemplated hereby (subject to any redactions
        considered appropriate by the Company or Broadview), if any;

       

      (viii)  employment
        agreement with David Struwas, to serve as the Company’s chief executive officer,
        effective commencing on or immediately following the Closing Date, at an
        annual
        base salary of no more than $300,000, duly executed by the Company;


       

      (ix)  payment
        in settlement of all reasonable and documented outstanding attorney’s fees
        incurred through the date of Closing on behalf of the Purchasers in connection
        with the transactions contemplated hereunder, provided such amount shall
        not
        exceed $150,000 in the aggregate;

       

      
        
          
          

        

        
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      (x)  the
        commitment from Deutsche Bank AG London’s (“DB”)
        designated representative to the Board to resign his Board position effective
        upon payment to DB of the final negotiated payoff amount in satisfaction
        of DB’s
        senior secured debt investment in the Company; and

       

      (xi)  the
        authorizing resolutions of the Board (A) approving the transactions contemplated
        hereby and (B) appointing a representative of DunKnight Telecom Partners
        LLC to
        the Board upon resignation of DB’s representative to the Board, as contemplated
        by clause (x) immediately above (it being understood and agreed that the
        Company
        may satisfy this clause (B) through Board approval of this Agreement (and
        Section 4.17 hereof)). 

       

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

       

      (i)       
        this
        Agreement duly executed by such Purchaser;

       

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

       

      (iii)  the
        Subordination Agreement; and

       

      (iv)  the
        Security Agreement, duly executed by the Purchasers, along with all the Security
        Documents duly executed by the parties thereto.

       

      2.3  Closing
        Conditions. 

       

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

       

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

       

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

       

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

       

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

       

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

       

      (ii)  all
        obligations, covenants and agreements of the Company required 

       

       

      
        
          
          

        

        
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        to
          be
          performed at or prior to the Closing Date shall have been performed; and
          

      

       

      (iii)  the
        delivery by the Company of the items set forth in Section 2.2(a) of this
        Agreement.

       

       

      ARTICLE
        III.

      REPRESENTATIONS
        AND WARRANTIES

       

      3.1  Representations
        and Warranties of the Company.
        Except
        as set forth under the corresponding section of the disclosure schedules
        delivered to the Purchasers concurrently herewith (the “Disclosure
        Schedules”)
        which
        Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
        the
        representations and warranties set forth below to each Purchaser.

       

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

       

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

       

      (c)  Authorization;
        Enforcement.
        The
        Company has the requisite corporate power and authority to enter into and
        to
        consummate the transactions contemplated by each of the Transaction Documents
        and otherwise to carry out its obligations hereunder and thereunder. The
        execution and delivery of each of the Transaction Documents by the 

       

      
        
          
          

        

        
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      Company
        and the consummation by it of the transactions contemplated thereby have
        been
        duly authorized by all necessary action on the part of the Company and no
        further action is required by the Company, the Board or its stockholders
        in
        connection therewith. Each Transaction Document has been (or upon delivery
        will
        have been) duly executed by the Company and, when delivered in accordance
        with
        the terms hereof and thereof, will constitute the valid and binding obligation
        of the Company enforceable against the Company in accordance with its terms
        except (i) as limited by applicable bankruptcy, insolvency, reorganization,
        moratorium and other laws of general application affecting enforcement of
        creditors’ rights generally and (ii) as limited by laws relating to the
        availability of specific performance, injunctive relief or other equitable
        remedies and (iii) insofar as indemnification and contribution provisions
        may be
        limited by applicable law.

       

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

       

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

       

      (f)  Issuance
        of the Securities.
        The
        Debentures are duly authorized for issuance. When issued and paid for in
        accordance with this Agreement, the Debentures will be duly and validly issued,
        fully paid and nonassessable, free and clear of all Liens imposed by the
        Company
        other than restrictions on transfer provided for in the Transaction Documents.
        

       

      
        
          
          

        

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

       

      (h)  SEC
        Reports; Financial Statements.
        The
        Company has filed all reports, schedules, forms, statements and other documents
        required to be filed by it under the Securities Act and the Exchange Act,
        including pursuant to Section 13(a) or 15(d) thereof, for the two years
        preceding the date hereof (or such shorter period as the Company was required
        by
        law to file such material) (the foregoing materials, including the exhibits
        thereto and documents incorporated by reference therein, being collectively
        referred to herein as the “SEC
        Reports”)
        on a
        timely basis or has received a valid extension of such time of filing and
        has
        filed any such SEC Reports prior to the expiration of any such extension.
        As of
        their respective dates, the SEC Reports complied in all material respects
        with
        the requirements of the Securities Act and the Exchange Act and the rules
        and
        regulations of the Commission promulgated thereunder, and none of the SEC
        Reports, when filed, but taking into account any amendments filed, contained
        any
        untrue statement of a material fact or omitted to state a material fact required
        to be stated therein or necessary in order to make the statements therein,
        in
        the light of the circumstances under which they were made, not misleading.
        The
        financial statements of the Company included in the SEC Reports comply in
        all
        material respects with applicable accounting requirements and the rules and
        regulations of the Commission with respect thereto as in effect at the time
        of
        filing. Such financial statements have been prepared in accordance with United
        States generally accepted accounting principles applied on a 

       

      
        
          
          

        

        
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      consistent
        basis during the periods involved (“GAAP”),
        except as may be otherwise specified in such financial statements or the
        notes
        thereto and except that unaudited financial statements may not contain all
        footnotes required by GAAP, and fairly present in all material respects the
        financial position of the Company and its consolidated subsidiaries as of
        and
        for the dates thereof and the results of operations and cash flows for the
        periods then ended, subject, in the case of unaudited statements, to normal
        year-end audit adjustments.

       

      (i)  Material
        Changes.
        Since
        the date of the latest audited financial statements included within the SEC
        Reports, except as specifically disclosed in the SEC Reports, (i) there has
        been
        no event, occurrence or development that has had or that could reasonably
        be
        expected to result in a Material Adverse Effect, (ii) the Company has not
        incurred any liabilities (contingent or otherwise) other than (A) trade payables
        and accrued expenses incurred in the ordinary course of business consistent
        with
        past practice and (B) liabilities not required to be reflected in the Company’s
        financial statements pursuant to GAAP or required to be disclosed in filings
        made with the Commission, (iii) the Company has not altered its method of
        accounting, (iv) the Company has not declared or made any dividend or
        distribution of cash or other property to its stockholders or purchased,
        redeemed or made any agreements to purchase or redeem any shares of its capital
        stock and (v) the Company has not issued any equity securities to any officer,
        director or Affiliate, except pursuant to existing Company stock option plans.
        The Company does not have pending before the Commission any request for
        confidential treatment of information.

       

      (j)  Litigation.
        There
        is no action, suit, inquiry, notice of violation, proceeding or investigation
        pending or, to the knowledge of the Company, threatened against or affecting
        the
        Company, any Subsidiary or any of their respective properties before or by
        any
        court, arbitrator, governmental or administrative agency or regulatory authority
        (federal, state, county, local or foreign) (collectively, an “Action”)
        which
        (i) adversely affects or challenges the legality, validity or enforceability
        of
        any of the Transaction Documents or the Debentures or (ii) could, if there
        were
        an unfavorable decision, have or reasonably be expected to result in a Material
        Adverse Effect. There has not been, and to the knowledge of the Company,
        there
        is not pending or contemplated, any investigation by the Commission involving
        the Company or any current or former director or officer of the Company.
        The
        Commission has not issued any stop order or other order suspending the
        effectiveness of any registration statement filed by the Company or any
        Subsidiary under the Exchange Act or the Securities Act.

       

      (k)  Labor
        Relations.
        No
        material labor dispute exists or, to the knowledge of the Company, is imminent
        with respect to any of the employees of the Company which could reasonably
        be
        expected to result in a Material Adverse Effect.

       

      (l)  Compliance.
        Neither
        the Company nor any Subsidiary (i) is in default under or in violation of
        (and
        no event has occurred that has not been waived that, with notice or lapse
        of
        time or both, would result in a default by the Company or any Subsidiary
        under),
        nor has the Company or any Subsidiary received notice of a claim that


       

      
        
          
          

        

        
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      it
        is in
        default under or that it is in violation of, any indenture, loan or credit
        agreement or any other agreement or instrument to which it is a party or
        by
        which it or any of its properties is bound, (ii) is in violation of any order
        of
        any court, arbitrator or governmental body, or (iii) is or has been in violation
        of any statute, rule or regulation of any governmental authority, including
        without limitation all foreign, federal, state and local laws applicable
        to its
        business except in each case as could not have a Material Adverse
        Effect.

       

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

       

      (n)  Title
        to Assets.
        The
        Company and the Subsidiaries have good and marketable title in fee simple
        to all
        real property owned by them that is material to the business of the Company
        and
        the Subsidiaries and good and marketable title in all personal property owned
        by
        them that is material to the business of the Company and the Subsidiaries,
        in
        each case free and clear of all Liens, except for Liens as do not materially
        affect the value of such property and do not materially interfere with the
        use
        made and proposed to be made of such property by the Company and the
        Subsidiaries and Liens for the payment of federal, state or other taxes not
        in
        excess of $10,000 owed to any one taxing jurisdiction or authority or $50,000
        in
        the aggregate. Any real property and facilities held under lease by the Company
        and the Subsidiaries are held by them under valid, subsisting and enforceable
        leases of which the Company and the Subsidiaries are in compliance.

       

      (o)  Patents
        and Trademarks.
        The
        Company and the Subsidiaries have, or have rights to use, all patents, patent
        applications, trademarks, trademark applications, service marks, trade names,
        copyrights, licenses and other similar rights necessary or material for use
        in
        connection with their respective businesses as described in the SEC Reports
        and
        which the failure to so have could have a Material Adverse Effect (collectively,
        the “Intellectual
        Property Rights”).
        Neither the Company nor any Subsidiary has received a written notice that
        the
        Intellectual Property Rights used by the Company or any Subsidiary violates
        or
        infringes upon the rights of any Person. To the knowledge of the Company,
        all
        such Intellectual Property Rights are enforceable and there is no existing
        infringement by another Person of any of the Intellectual Property Rights
        of
        others. At least a majority of the Company’s current employees and all of its
        officers and senior non-officer departmental vice presidents have entered
        into
        the Company’s standard form of proprietary information and inventions
        agreement.

       

      (p)  Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary in the businesses in which the Company and the Subsidiaries
        

       

      
        
          
          

        

        
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      are
        engaged, including, but not limited to, directors and officers insurance
        coverage at least equal to $10,000,000. To the knowledge of the Company,
        such
        insurance contracts and policies are accurate and complete. Neither the Company
        nor any Subsidiary has any reason to believe that it will not be able to
        renew
        its existing insurance coverage as and when such coverage expires or to obtain
        similar coverage from similar insurers as may be necessary to continue its
        business without a significant increase in cost.

       

      (q)  Transactions
        With Affiliates and Employees.
        Except
        as set forth in the SEC Reports or as contemplated by the Transaction Documents,
        none of the officers or directors of the Company and, to the knowledge of
        the
        Company, none of the employees of the Company is presently a party to any
        transaction with the Company or any Subsidiary (other than for services as
        employees, officers and directors), including any contract, agreement or
        other
        arrangement providing for the furnishing of services to or by, providing
        for
        rental of real or personal property to or from, or otherwise requiring payments
        to or from any officer, director or such employee or, to the knowledge of
        the
        Company, any entity in which any officer, director, or any such employee
        has a
        substantial interest or is an officer, director, trustee or partner, in each
        case in excess of $60,000 other than (i) for payment of salary or consulting
        or
        director fees for services rendered, (ii) reimbursement for expenses incurred
        on
        behalf of the Company and (iii) for other employee benefits, including stock
        option agreements under any stock option plan of the Company.

       

      (r)  Sarbanes-Oxley;
        Internal Accounting Controls.
        The
        Company is in material compliance with all provisions of the Sarbanes-Oxley
        Act
        of 2002 which are applicable to it as of the Closing Date (for the sake of
        clarity, it is understood that the Company is not currently required to comply
        with Section 404 of the Sarbanes-Oxley Act of 2002). The
        Company and the Subsidiaries maintain a system of internal accounting controls
        which are, to the knowledge of the Company, sufficient to provide reasonable
        assurance that (i) transactions are executed in accordance with management’s
        general or specific authorizations, (ii) transactions are recorded as necessary
        to permit preparation of financial statements in conformity with GAAP and
        to
        maintain asset accountability, (iii) access to assets is permitted only in
        accordance with management’s general or specific authorization, and (iv) the
        recorded accountability for assets is compared with the existing assets at
        reasonable intervals and appropriate action is taken with respect to any
        differences. The Company has established disclosure controls and procedures
        (as
        defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
        designed such disclosure controls and procedures to ensure that material
        information relating to the Company, including its Subsidiaries, is made
        known
        to the certifying officers by others within those entities, particularly
        during
        the period in which the Company’s most recently filed periodic report under the
        Exchange Act, as the case may be, is being prepared. The Company’s certifying
        officers have evaluated the effectiveness of the Company’s disclosure controls
        and procedures as of the date prior to the filing date of the most recently
        filed periodic report under the Exchange Act (such date, the “Evaluation
        Date”).
        The
        Company presented in its most recently filed periodic report under the Exchange
        Act the conclusions of the certifying officers about the effectiveness of
        the
        disclosure controls and procedures based on their evaluations as of the
        Evaluation Date.

       

      
        
          
          

        

        
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      Since
        the
        Evaluation Date, there have been no significant changes in the Company’s
        internal control over financial reporting (as such term is defined in Item
        307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of
        the
        Company, in other factors that could significantly affect the Company’s internal
        control over financial reporting.

       

      (s)  Certain
        Fees.
        No
        brokerage or finder’s fees or commissions are or will be payable by the Company
        to any broker, financial advisor or consultant, finder, placement agent,
        investment banker, bank or other Person with respect to the transactions
        contemplated by the Transaction Documents. 

       

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

       

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

       

      (v)  Listing
        and Maintenance Requirements.
        The
        Company’s Common Stock is registered pursuant to Section 12(b) of the Exchange
        Act, and the Company has taken no action designed to, or which to its knowledge
        is likely to have the effect of, terminating the registration of the Common
        Stock under the Exchange Act nor has the Company received any notification
        that
        the Commission is contemplating terminating such registration. The Company
        has
        not, in the 12 months preceding the date hereof, received written notice
        from
        any Trading Market on which the Common Stock is or has been listed or quoted
        to
        the effect that the Company is not in compliance with the listing or maintenance
        requirements of such Trading Market other than a letter received from the
        American Stock Exchange described in a Current Report on Form 8-K filed on
        October 14, 2005.

       

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

       

      
        
          
          

        

        
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      (x)  Disclosure.
        All
        disclosure provided to the Purchasers regarding the Company, its business
        and
        the transactions contemplated hereby, including the Disclosure Schedules
        to this
        Agreement, furnished by or on behalf of the Company with respect to the
        representations and warranties made herein are true and correct in all material
        respects with respect to such representations and warranties and do not contain
        any untrue statement of a material fact or omit to state any material fact
        necessary in order to make the statements made therein, in light of the
        circumstances under which they were made, not misleading. The Company
        acknowledges and agrees that no Purchaser makes or has made any representations
        or warranties with respect to the transactions contemplated hereby other
        than
        those specifically set forth in Section 3.2 hereof.

       

      (y)  No
        Integrated Offering.
        Assuming
        the accuracy of the Purchasers’ representations and warranties set forth in
        Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
        acting on its or their behalf has, directly or indirectly, made any offers
        or
        sales of any security or solicited any offers to buy any security, under
        circumstances that would cause this offering of the Debentures to be integrated
        with prior offerings by the Company for purposes of the Securities Act or
        any
        applicable shareholder approval provisions, including, without limitation,
        under
        the rules and regulations of any Trading Market on which any of the securities
        of the Company are listed or designated.

       

      (z)  Financial
        Condition.
        The
        unaudited balance sheet and earnings statement of the Company, for the period
        ended August 31, 2005, and the bank statement cash balances of the Company
        dated
        October 26, 2005, copies of which have been previously provided to DunKnight
        Telecom Partners LLC, as agent for the Purchasers, at its request, are, to
        the
        knowledge of the Company, materially accurate as of the dates and periods
        so
        reported therein. The Company’s Quarterly Report on Form 10-Q for the quarter
        ended June 30, 2005 sets forth as of the dates thereof all outstanding secured
        and unsecured Indebtedness of the Company or any Subsidiary, or for which
        the
        Company or any Subsidiary has commitments. For the purposes of this paragraph
        (z), “Indebtedness”
        shall
        mean (a) any liabilities for borrowed money or amounts owed in excess of
        $100,000 (other than trade accounts payable incurred or issued in the ordinary
        course of business), (b) all guaranties, endorsements and other contingent
        obligations in respect of Indebtedness of others, whether or not the same
        are or
        should be reflected in the Company’s balance sheet (or the notes thereto),
        except guaranties by endorsement of negotiable instruments for deposit or
        collection or similar transactions in the ordinary course of business; and
        (c)
        the present value of any lease payments
        in excess of $50,000 due under leases required to be capitalized in accordance
        with GAAP. Neither
        the Company nor any Subsidiary is in default with respect to any
        Indebtedness.

       

      (aa)  Tax
        Status.Except
        for matters that would not, individually or in the aggregate, have or reasonably
        be expected to result in a Material Adverse Effect, to the knowledge of the
        Company, the Company and each Subsidiary has filed all necessary federal
        and
        state tax returns and has paid or accrued all taxes shown as due thereon,
        and
        the principal financial and executive officers of the Company have no actual
        knowledge of any material tax deficiencies which have been asserted or
        threatened against the 

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      Company
        or any Subsidiary, nor of any material liability for any tax to be imposed
        on
        the properties, assets or operations of the Company as of the date of this
        Agreement that is not adequately provided for.

       

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

       

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

       

      (dd)  Accountants.
        The
        Company’s accountants are set forth on Schedule
        3.1(dd)
        of the
        Disclosure Schedule. To the knowledge of the Company, such accountants, who
        the
        Company expects will express their opinion with respect to the financial
        statements to be included in the Company’s Annual Report on Form 10-K for the
        year ended December 31, 2005, are a registered public accounting firm as
        required by the Securities Act.

       

      (ee)  Seniority.
        As of
        the Closing Date, other than with respect to specified priority interests
        granted to Laurus as set forth in the Subordination Agreement, no indebtedness
        or other equity of the Company is senior to the Debentures in right of payment,
        whether with respect to interest or upon liquidation or dissolution, or
        otherwise, other than indebtedness secured by purchase money security interests
        (which is senior only as to underlying assets covered thereby) and capital
        lease
        obligations (which is senior only as to the property covered
        thereby).

       

      (ff)  No
        Disagreements with Accountants and Lawyers.
        There
        are no material disagreements of any kind presently existing, or reasonably
        anticipated by the Company to arise, between the accountants and lawyers
        formerly or presently employed by the Company and the Company is current
        with
        respect to any fees owed to its accountants and lawyers.

       

      (gg)  Acknowledgment
        Regarding Purchasers’ Purchase of Debentures.
        The
        Company acknowledges and agrees that each of the Purchasers is acting solely
        in
        the capacity of an arm’s length purchaser with respect to the Transaction
        Documents and the transactions contemplated hereby. The Company further
        acknowledges that no Purchaser is acting as a financial advisor or fiduciary
        of
        the Company (or in any similar capacity) 

       

      
        
          
          

        

        
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      with
        respect to this Agreement and the transactions contemplated hereby and any
        advice given by any Purchaser or any of their respective representatives
        or
        agents in connection with this Agreement and the transactions contemplated
        hereby is merely incidental to the Purchasers’ purchase of the Debentures. The
        Company further represents to each Purchaser that the Company’s decision to
        enter into this Agreement has been based solely on the independent evaluation
        of
        the transactions contemplated hereby by the Company and its
        representatives.

       

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

       

      (ii)  Manipulation
        of Price. 
        The Company has not, and to its knowledge no one acting on its behalf has,
        (i)
        taken, directly or indirectly, any action designed to cause or to result
        in the
        stabilization or manipulation of the price of any security of the Company
        to
        facilitate the sale or resale of any of the Debentures, (ii) sold, bid for,
        purchased, or, paid any compensation for soliciting purchases of, any of
        the
        Debentures (other than for the placement agent’s placement of the Debentures),
        or (iii) paid or agreed to pay to any person any compensation for soliciting
        another to purchase any other securities of the Company.

       

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

       

      (a)  Organization;
        Authority.
        Such
        Purchaser is an entity duly organized, validly existing and in good standing
        under the laws of the jurisdiction of its organization with full right,
        corporate or partnership power and authority to enter into and to consummate
        the
        transactions contemplated by the Transaction Documents and otherwise


       

      
        
          
          

        

        
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      to
        carry
        out its obligations hereunder and thereunder. The execution, delivery and
        performance by such Purchaser of the transactions contemplated by this Agreement
        have been duly authorized by all necessary corporate or similar action on
        the
        part of such Purchaser. Each Transaction Document to which it is a party
        has
        been duly executed by such Purchaser, and when delivered by such Purchaser
        in
        accordance with the terms hereof, will constitute the valid and legally binding
        obligation of such Purchaser, enforceable against it in accordance with its
        terms, except (i) as limited by general equitable principles and applicable
        bankruptcy, insolvency, reorganization, moratorium and other laws of general
        application affecting enforcement of creditors’ rights generally, (ii) as
        limited by laws relating to the availability of specific performance, injunctive
        relief or other equitable remedies and (iii) insofar as indemnification and
        contribution provisions may be limited by applicable law.

       

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

       

      (c)  Purchaser
        Status.
        At the
        time such Purchaser was offered the Debentures, it was, and at the date hereof
        it is, an “accredited investor” as defined in Rule 501 under the Securities Act.
        Such Purchaser is not required to be registered as a broker-dealer under
        Section
        15 of the Exchange Act. Each Purchaser acknowledges it is illegal to trade
        securities of the Company while in possession of material non-public information
        relating to the Company. 

       

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

       

      (e)  General
        Solicitation.
        Such
        Purchaser is not purchasing the Debentures as a result of any advertisement,
        article, notice or other communication regarding the Debentures published
        in any
        newspaper, magazine or similar media or broadcast over 

       

      
        
          
          

        

        
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      television
        or radio or presented at any seminar or any other general solicitation or
        general advertisement.

       

      (f)  Short
        Sales and Confidentiality Prior To The Date Hereof.
        Other
        than the transaction contemplated hereunder, such Purchaser has not directly
        or
        indirectly, nor has any Person acting on behalf of or pursuant to any
        understanding with such Purchaser, executed any disposition, including Short
        Sales (but not including the location and/or reservation of borrowable shares
        of
        Common Stock), in the securities of the Company during the period
        commencing from the time that such Purchaser first received a term sheet
        from
        the Company or any other Person setting forth the material terms of the
        transactions contemplated hereunder until the date hereof (“Discussion
        Time”).
        Notwithstanding the foregoing, in the case of a Purchaser that is a
        multi-managed investment vehicle whereby separate portfolio managers manage
        separate portions of such Purchaser's assets and the portfolio managers have
        no
        direct knowledge of the investment decisions made by the portfolio managers
        managing other portions of such Purchaser's assets, the representation set
        forth
        above shall only apply with respect to the portion of assets managed by the
        portfolio manager that made the investment decision to purchase the Debentures
        covered by this Agreement. Other than to other Persons party to this Agreement,
        such Purchaser has maintained the confidentiality of all disclosures made
        to it
        in connection with this transaction (including the existence and terms of
        this
        transaction).

       

      (g)  Residence.
        Purchaser is a partnership, corporation, limited liability company or other
        entity and the office or offices of such Purchaser in which its investment
        decision was made is located at the address or addresses of such Purchaser
        set
        forth on the signature page hereto.

       

      (h)  Company
        Information.
        Purchaser hereby acknowledges that the SEC Reports are publicly available
        and
        that such Purchaser has access to the SEC Reports, and, prior to the execution
        of this Agreement (i) has had sufficient time and opportunity to review the
        SEC
        Reports and (ii) has had an opportunity to discuss the Company’s business,
        management and financial affairs with directors, officers and management
        of the
        Company. Such Purchaser has also had the opportunity to ask questions of,
        and
        receive answers from, the Company and its management regarding the terms
        and
        conditions of this investment.

       

      (i)  PATRIOT
        Act.
        Such
        Purchaser further represents and warrants to, and covenants with, the Company
        that (i) it is in compliance with Executive Order 13224 and the regulations
        administered by the U.S. Department of the Treasury (“Treasury”)
        Office
        of Foreign Assets Control, (ii) its parents, subsidiaries, affiliated companies,
        officers, directors and partners, and to the Purchaser’s knowledge, its
        shareholders, owners, employees, and agents, are not on the List of Specially
        Designated Nationals and Blocked Persons maintained by Treasury and have
        not
        been designated by Treasury as a financial institution of primary money
        laundering concern, (iii) to the Purchaser’s knowledge after reasonable
        investigation, all of the funds to be used to acquire the Debentures are
        derived
        from legitimate sources and are not the product of illegal activities, and
        (iv)
        the Purchaser 

       

      
        
          
          

        

        
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      is
        in
        compliance with all other applicable U.S. anti-money laundering laws and
        regulations and has implemented, if applicable, an anti-money laundering
        compliance program in accordance with the requirements of the Bank Secrecy
        Act,
        as amended by the USA PATRIOT Act, Pub. L. 107-56.

       

      The
        Company acknowledges and agrees that each Purchaser does not make or has
        not
        made any representations or warranties with respect to the transactions
        contemplated hereby other than those specifically set forth in this Section
        3.2.

      


       

      ARTICLE
        IV.

      OTHER
        AGREEMENTS OF THE PARTIES

       

      4.1  Transfer
        Restrictions.

       

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

       

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

       

      THIS
        SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
        OR
        THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
        REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
        ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
        EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
        AN
        AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
        REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
        SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
        TO
        SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
        COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
        ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

       

      The
        Company acknowledges and agrees that a Purchaser may from time to time pledge
        pursuant to a bona fide margin agreement with a registered broker-dealer
        or
        grant 

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      a
        security interest in some or all of the Debentures to a financial institution
        that is an “accredited investor” as defined in Rule 501(a) under the Securities
        Act and who agrees to be bound by the provisions of this Agreement and, if
        required under the terms of such arrangement, such Purchaser may transfer
        pledged or secured Debentures to the pledgees or secured parties. Such a
        pledge
        or transfer would not be subject to approval of the Company and no legal
        opinion
        of legal counsel of the pledgee, secured party or pledgor shall be required
        in
        connection therewith. Further, no notice shall be required of such pledge.
        At
        the appropriate Purchaser’s expense, the Company will execute and deliver such
        reasonable documentation as a pledgee or secured party of Debentures may
        reasonably request in connection with a pledge or transfer of the
        Debentures.

       

      (c)  Each
        Purchaser, severally and not jointly with the other Purchasers, agrees that
        the
        removal of the restrictive legend from certificates representing Debentures
        as
        set forth in this Section 4.1 is predicated upon the Company’s reliance that the
        Purchaser will sell any Debentures pursuant to either the registration
        requirements of the Securities Act, including any applicable prospectus delivery
        requirements, or an exemption therefrom.

       

      4.2  Furnishing
        of Information.
        As long
        as any Purchaser owns Debentures, the Company covenants to timely file (or
        obtain extensions in respect thereof and file within the applicable grace
        period) all reports required to be filed by the Company after the date hereof
        pursuant to the Exchange Act. The Company further covenants that it will
        take
        such further action as any holder of Debentures may reasonably request, all
        to
        the extent required from time to time to enable such Person to sell such
        Debentures without registration under the Securities Act within the limitation
        of the exemptions provided by Rule 144.

       

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

       

      4.4  Securities
        Laws Disclosure; Publicity.
        The
        Company shall, within the time periods permitted by Current Report on Form
        8-K,
        issue a press release or releases and Form 8-K, reasonably acceptable to
        each
        Purchaser disclosing the material terms of the transactions contemplated
        hereby.
        The Company and each Purchaser shall consult with each other in issuing any
        other press releases with respect to the transactions contemplated hereby,
        and
        neither the Company nor any Purchaser shall issue any such press release
        or
        otherwise make any such public statement without the prior consent of the
        Company, with respect to any press release of any Purchaser, or without the
        prior consent of each Purchaser, with respect to any press release of the
        Company, which consent shall not unreasonably be withheld, except if such
        disclosure is required by law or Trading Market regulation, in which case
        the
        disclosing party shall promptly provide the other party with prior notice
        of
        such public statement or communication. Notwithstanding the foregoing, the
        Company shall not publicly disclose the name of any Purchaser, or include
        the
        name of any Purchaser in any filing with the Commission or any regulatory
        agency
        or Trading Market, without the prior written consent of such Purchaser except
        

       

      
        
          
          

        

        
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      to
        the
        extent such disclosure is required by law or Trading Market regulations,
        in
        which case the Company shall provide the Purchasers with prior notice of
        such
        disclosure permitted.

       

      4.5  Shareholder
        Rights Plan.
        No
        claim will be made or enforced by the Company or, to the knowledge of the
        Company, any other Person that any Purchaser is an “Acquiring Person” under any
        shareholder rights plan or similar plan or arrangement in effect or hereafter
        adopted by the Company, or that any Purchaser could be deemed to trigger
        the
        provisions of any such plan or arrangement, by virtue of receiving Debentures
        under the Transaction Documents or under any other agreement between the
        Company
        and the Purchasers. The Company shall conduct its business in a manner so
        that
        it will not become subject to the Investment Company Act.

       

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

       

      4.7  Use
        of
        Proceeds.
        Except
        as set forth on Schedule
        4.7
        attached
        hereto, the Company shall use the net proceeds from the sale of the Debentures
        hereunder first for the repurchase of certain indebtedness and preferred
        stock
        as described on Schedule
        4.7
        and then
        for working capital purposes and not for the satisfaction of any portion
        of the
        Company’s debt (other than the debt owed to Laurus, payment of trade payables in
        the ordinary course of the Company’s business and prior practices), to redeem
        any Common Stock or Common Stock Equivalents or to settle any outstanding
        litigation.

       

      4.8  Reimbursement.
        If any
        Purchaser becomes involved in any capacity in any Proceeding by or against
        any
        Person who is a stockholder of the Company (except as a result of sales,
        pledges, margin sales and similar transactions by such Purchaser to or with
        any
        current stockholder), solely as a result of such Purchaser’s acquisition of the
        Debentures under this Agreement, the Company will reimburse such Purchaser
        for
        its reasonable legal and other expenses (including the cost of any investigation
        preparation and travel in connection therewith) incurred in connection
        therewith, as such expenses are incurred. The reimbursement obligations of
        the
        Company under this paragraph shall be in addition to any liability which
        the
        Company may otherwise have, shall extend upon the same terms and conditions
        to
        any Affiliates of the Purchasers who are actually named in such action,
        proceeding or investigation, and partners, directors, agents, employees and
        controlling persons (if any), as the case may be, of the Purchasers and any
        such
        Affiliate, and shall be binding upon and inure to the benefit of any successors,
        assigns, heirs and personal representatives of the Company, the Purchasers
        and
        any such Affiliate and any such Person. The Company also agrees that neither
        the
        Purchasers nor any such Affiliates, partners, directors, agents, employees
        or
        controlling persons shall have any liability to the Company or any Person
        asserting claims on behalf of or in right of the Company solely as a result
        of
        acquiring the Debentures under this Agreement.

       

      4.9  Indemnification
        of Purchasers.
        Subject
        to the provisions of this Section 4.9, the Company will indemnify and hold
        the
        Purchasers, their advisor Endeavor Capital Management 

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      LLC
        and
        their directors, officers, shareholders, members, partners, employees and
        agents
        (each, a “Purchaser
        Party”)
        harmless from any and all losses, liabilities, obligations, claims,
        contingencies, damages, costs and expenses, including all judgments, amounts
        paid in settlements, court costs and reasonable attorneys’ fees and costs of
        investigation (“Losses”)
        that
        any such Purchaser Party may suffer or incur as a result of or relating to
        (a)
        any breach of any of the representations, warranties, covenants or agreements
        made by the Company in this Agreement or in the other Transaction Documents
        or
        (b) any action instituted against a Purchaser, or any of them or their
        respective Affiliates, by any stockholder of the Company who is not an Affiliate
        of such Purchaser, with respect to any of the transactions contemplated by
        the
        Transaction Documents (unless such Losses arise from a breach of such
        Purchaser’s representations, warranties or covenants under the Transaction
        Documents or any agreements or understandings such Purchaser may have with
        any
        such stockholder or any violations by the Purchaser of state or federal
        securities laws or any conduct by such Purchaser which constitutes fraud,
        gross
        negligence, willful misconduct or malfeasance). If any action shall be brought
        against any Purchaser Party in respect of which indemnity may be sought pursuant
        to this Agreement, such Purchaser Party shall promptly notify the Company
        in
        writing, and the Company shall have the right to assume the defense thereof
        with
        counsel of its own choosing. Any Purchaser Party shall have the right to
        employ
        separate counsel in any such action and participate in the defense thereof,
        but
        the fees and expenses of such counsel shall be at the expense of such Purchaser
        Party except to the extent that (i) the employment thereof has been specifically
        authorized by the Company in writing, (ii) the Company has failed after a
        reasonable period of time to assume such defense and to employ counsel or
        (iii)
        in such action there is, in the reasonable opinion of such separate counsel,
        a
        material conflict on any material issue between the position of the Company
        and
        the position of such Purchaser Party. The Company will not be liable to any
        Purchaser Party under this Agreement (i) for any settlement by a Purchaser
        Party
        effected without the Company’s prior written consent, which shall not be
        unreasonably withheld or delayed; or (ii) to the extent, but only to the
        extent
        that a loss, claim, damage or liability is attributable to any Purchaser
        Party’s
        breach of any of the representations, warranties, covenants or agreements
        made
        by the Purchasers in this Agreement or in the other Transaction Documents
        or any
        agreements or understandings such Purchaser may have with any such stockholder
        or any violations by the Purchaser of state or federal securities laws or
        any
        conduct by such Purchaser which constitutes fraud, gross negligence, willful
        misconduct or malfeasance.

       

      4.10  Participation
        in Future Financing.
        

       

      (a)  From
        the
        date hereof until the date a Purchaser no longer holds any Debentures, upon
        any
        financing by the Company or any of its Subsidiaries of debt securities, Common
        Stock or Common Stock Equivalents (a “Subsequent
        Financing”),
        Purchasers (or their affiliated designees) shall have the right to participate
        in such Subsequent Financing in an amount up to the full amount of such
        Subsequent Financing (the “Participation
        Maximum”).

       

      (b)  At
        least
        5 Trading Days prior to the closing of the Subsequent Financing, the Company
        shall deliver to each Purchaser a written notice of its intention to effect
        a
        Subsequent Financing (“Pre-Notice”),
        which
        Pre-Notice shall ask such Purchaser if it 

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      wants
        to
        review the details of such financing (such additional notice, a “Subsequent
        Financing Notice”).
        Upon
        the request of a Purchaser, and only upon a request by such Purchaser, for
        a
        Subsequent Financing Notice, the Company shall promptly, but no later than
        1
        Trading Day after such request, deliver a Subsequent Financing Notice to
        such
        Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
        the proposed terms of such Subsequent Financing, the amount of proceeds intended
        to be raised thereunder, the Person with whom such Subsequent Financing is
        proposed to be effected, and attached to which shall be a term sheet or similar
        document relating thereto. 

       

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

       

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

       

      (e)  If
        by
        5:30 p.m. (New York City time) on the 5th
        Trading
        Day after all of the Purchasers have received the Pre-Notice, the Company
        receives responses to a Subsequent Financing Notice from Purchasers seeking
        to
        purchase more than the aggregate amount of the Participation Maximum, each
        such
        Purchaser shall have the right to purchase the greater of (a) their Pro Rata
        Portion (as defined below) of the Participation Maximum and (b) the difference
        between the Participation Maximum and the aggregate amount of participation
        by
        all other Purchasers.  “Pro
        Rata Portion”
        is the
        ratio of (x) the Subscription Amount of Debentures purchased on the Closing
        Date
        by a Purchaser participating under this Section 4.10 and (y) the sum of the
        aggregate Subscription Amounts of Debentures purchased on the Closing Date
        by
        all Purchasers participating under this Section 4.10.

       

      (f)  The
        Company must provide the Purchasers with a second Subsequent Financing Notice,
        and the Purchasers will again have the right of participation set forth above
        in
        this Section 4.10, if the Subsequent Financing subject to the initial Subsequent
        Financing Notice is not consummated for any reason on the terms set forth
        in
        such Subsequent Financing Notice within 60 Trading Days after the date of
        the
        initial Subsequent Financing Notice. 

       

      (g)  Notwithstanding
        the foregoing, this Section 4.10 shall not apply in respect of an Exempt
        Issuance.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      4.11  Equal
        Treatment of Purchasers.
        No
        consideration shall be offered or paid to any person to amend or consent
        to a
        waiver or modification of any provision of any of the Transaction Documents
        unless the same consideration is also offered to all of the parties to the
        Transaction Documents. Further, the Company shall not make any payment of
        principal or interest on the Debentures in amounts which are disproportionate
        to
        the respective principal amounts outstanding on the Debentures at any applicable
        time. For clarification purposes, this provision constitutes a separate right
        granted to each Purchaser by the Company and negotiated separately by each
        Purchaser, and is intended for the Company to treat the Purchasers as a class
        and shall not in any way be construed as the Purchasers acting in concert
        or as
        a group with respect to the purchase, disposition or voting of Debentures
        or
        otherwise.

       

      4.12  Short
        Sales and Confidentiality After The Date Hereof.
        Each
        Purchaser severally and not jointly with the other Purchasers covenants that
        neither it nor any affiliates acting on its behalf or pursuant to any
        understanding with it will execute any Short Sales during the period after
        the
        Discussion Time and ending at the time that the transactions contemplated
        by
        this Agreement are first publicly announced as described in Section 4.6.
        Each
        Purchaser, severally and not jointly with the other Purchasers, covenants
        that
        until such time as the transactions contemplated by this Agreement are publicly
        disclosed by the Company as described in Section 4.6, such Purchaser will
        maintain, the confidentiality of all disclosures made to it in connection
        with
        this transaction (including the existence and terms of this transaction).
        Notwithstanding the foregoing, no Purchaser makes any representation, warranty
        or covenant hereby that it will not engage in Short Sales in
        the
        securities of the Company after the time that the transactions contemplated
        by
        this Agreement are first publicly announced as described herein. Notwithstanding
        the foregoing, in the case of a Purchaser that is a multi-managed investment
        vehicle whereby separate portfolio managers manage separate portions of such
        Purchaser's assets and the portfolio managers have no direct knowledge of
        the
        investment decisions made by the portfolio managers managing other portions
        of
        such Purchaser's assets, the covenant set forth above shall only apply with
        respect to the portion of assets managed by the portfolio manager that made
        the
        investment decision to purchase the Debentures covered by this
        Agreement.

       

      4.13  Additional
        Investment Obligation.
        On
        January 3, 2006, provided that no material Event of Default (other than one
        arising from or under Section 7(b) of the Debentures) has occurred prior
        to such
        date which has not been previously waived or cured, each Purchaser, or its
        designees, shall be required to purchase, in the ratio of such Purchaser’s
        Subscription Amount on the Closing Date to the aggregate Subscription Amounts
        of
        all Purchasers on the Closing Date (such amount, the Purchaser’s “Pro
        Rata Share”),
        additional debentures totaling $5,000,000 in principal amount, for an aggregate
        purchase price of $4,000,000 (the “Additional
        Investment”).
        For
        the sake of clarity, the Purchaser shall be required to subscribe for the
        entire
        Additional Investment to the extent that it has not designated other purchasers
        or such designees fail to make their pro rata share of such investment on
        January 3, 2006. The form of Debenture used for the foregoing additional
        debentures shall be identical to the form of Debenture used at the initial
        Closing.

       

      4.14  Chief
        Executive Officer.
        Subject
        to any restrictions imposed by applicable law, for so long as the Purchaser(s)
        own all of the issued and outstanding Debentures, the Company shall not appoint
        a successor chief executive officer of the Company in replacement of David
        

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      Struwas
        without the prior written consent of a majority in interest (which such majority
        must include DunKnight Telecom Partners LLC, to the extent then a holder
        of
        Debentures) of the Purchasers and their permitted assigns, which consent
        shall
        not be unreasonably withheld, conditioned or delayed. Mr. Struwas shall also
        be
        appointed to the Board as a replacement for the existing chief executive
        officer
        as soon as possible after the Closing.

       

      4.15  Right
        to Financial Information.
        Each
        Purchaser holding Debentures shall receive, within 45 days after the end
        of each
        month, an internally prepared unaudited balance sheet and income statement
        for
        the period ending the immediately preceding month, audited financial reports
        within 180 days after the end of a fiscal year, quarterly unaudited financial
        reports within 45 days after the end of each of the first three quarters
        and
        business plans and annual budgets promptly following Board approval thereof,
        as
        well as standard inspection rights on reasonable notice and terms. Such
        Purchasers shall execute and deliver to the Company a standard non-disclosure
        agreement prior to its first receipt of such information, which such agreement
        shall be applicable to all future information received by such Purchaser
        pursuant to this Section 4.15. Notwithstanding the foregoing, to the extent
        applicable, the Company shall be deemed to have satisfied the foregoing
        requirements upon timely filing of same with the Securities and Exchange
        Commission.

       

      4.16  Accountants.
        All
        financial reports of the Company filed with the Securities and Exchange
        Commission shall be audited or reviewed, as the case may be, by an accounting
        firm selected by the Board.

       

      4.17  Board
        of Directors.
        (a) For
        so long as the Debentures remain outstanding, the holders of a majority in
        principal amount of outstanding Debentures shall be entitled to observer
        status
        in any meeting of the Board (provided that such majority shall designate
        in
        writing to the Company only one individual representing such Purchaser(s)
        for
        each Board meeting, who shall have signed an appropriate nondisclosure
        agreement). The representative may be excluded from any meeting or portion
        of a
        meeting in order to preserve the attorney-client privilege. In no event shall
        the representative be a person who, in the reasonable judgment of the Company,
        is affiliated with a direct competitor of the Company. The Company and the
        Purchasers agree that the foregoing observer rights under this Section 4.17(a)
        shall only apply during times when the Purchasers do not have a designated
        representative serving on the Board pursuant to Section 4.17(b), below, provided
        any Debentures then remain outstanding. 

       

      (b)
        For
        so long as the Debentures remain outstanding, and subject to the Company’s
        ongoing compliance obligations with Board composition required by applicable
        law
        and the rules or regulations of the market or exchange on which the Company’s
        securities are then traded, the holders of a majority in principal amount
        of
        outstanding Debentures shall be entitled to nominate one person to the Board
        and
        the Company shall thereafter use its commercially reasonable best efforts
        to
        maintain such Board seat and include such designee on all applicable proxies
        soliciting the election of such designee, subject to and in accordance with
        applicable law and the Company’s governing organizational instruments. Such
        Board member shall have all rights and privileges granted to directors
        generally, under applicable law and the Company’s organizational instruments,
        including, but not limited to, the right to obtain copies of all minutes
        from
        and notices regarding Board meetings, as well as copies of all correspondence
        

       

      
        
          
          

        

        
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      to
        members of the Board. In furtherance of this Section 4.17, and in satisfaction
        of Section 2.2(a)(xi), the parties hereto agree that the Company shall fill
        the
        vacancy created by the resignation of DB’s representative to the Board with Keir
        Kleinknecht, who shall be considered the Purchasers’ initial representative to
        the Board, to serve in such capacity until the next annual meeting of
        stockholders of the Company at which his class is to be elected, or until
        his
        earlier death, resignation or removal, and otherwise subject to the Board
        resolutions authorizing same. Any vacancy in the office of the Purchasers’
        director designee may be filled only by a designated representative of the
        Purchasers and in each case in accordance with the requirements of this
        Agreement. Notwithstanding anything to the contrary in this Agreement, each
        of
        the Company and the Purchasers covenants that they shall take such actions
        as
        may reasonably be required in the Board’s determination to maintain such number
        of directors as may be required to provide for such number of independent
        directors as required by applicable Commission rules and regulations and
        the
        rules and regulations of any market or exchange on which the Company’s
        securities are then traded.

       

       

      ARTICLE
        V.

      MISCELLANEOUS

       

      5.1  Intentionally
        omitted.

       

      5.2  Fees
        and Expenses.
        At the
        Closing, the Company has agreed to reimburse DunKnight Telecom Partners,
        LLC and
        Endeavor Capital Management, Inc. (“Lead
        Purchaser”)
        for
        its actual, reasonable, out-of-pocket legal fees and expenses in accordance
        with
        Section 2.2(a)(viii). Accordingly, in lieu of the foregoing payments, the
        aggregate amount that the Lead Purchaser is to pay for the Debentures at
        the
        Closing shall be reduced by such amount in lieu thereof. The Company shall
        deliver, prior to the Closing, a completed and executed copy of the Closing
        Statement, attached hereto as Annex
        A.
        Except
        as expressly set forth in the Transaction Documents to the contrary, each
        party
        shall pay the fees and expenses of its advisers, counsel, accountants and
        other
        experts, if any, and all other expenses incurred by such party incident to
        the
        negotiation, preparation, execution, delivery and performance of this Agreement.
        The Company shall pay all transfer agent fees, stamp taxes and other taxes
        and
        duties levied in connection with the delivery of any Debentures.

       

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

       

      5.4  Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or communication
        is delivered via facsimile at the facsimile number set forth on the signature
        pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
        Day,
        (b) the next Trading Day after the date of transmission, if such notice or
        communication is delivered via facsimile at the facsimile number set forth
        on
        the signature pages attached hereto on a day that is not a Trading Day or
        later
        than 

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      5:30
        p.m.
        (New York City time) on any Trading Day, (c) the 2nd
        Trading
        Day following the date of mailing, if sent by U.S. nationally recognized
        overnight courier service, or (d) upon actual receipt by the party to whom
        such
        notice is required to be given. The address for such notices and communications
        shall be as set forth on the signature pages attached hereto.

       

      5.5  Amendments;
        Waivers.
        No
        provision of this Agreement may be waived or amended except in a written
        instrument signed, in the case of an amendment, by the Company and each
        Purchaser or, in the case of a waiver, by the party against whom enforcement
        of
        any such waiver is sought. No waiver of any default with respect to any
        provision, condition or requirement of this Agreement shall be deemed to
        be a
        continuing waiver in the future or a waiver of any subsequent default or
        a
        waiver of any other provision, condition or requirement hereof, nor shall
        any
        delay or omission of either party to exercise any right hereunder in any
        manner
        impair the exercise of any such right.

       

      5.6  Headings.
        The
        headings herein are for convenience only, do not constitute a part of this
        Agreement and shall not be deemed to limit or affect any of the provisions
        hereof. The language used in this Agreement will be deemed to be the language
        chosen by the parties to express their mutual intent, and no rules of strict
        construction will be applied against any party.

       

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

       

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

       

      5.9  Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of the Transaction Documents shall be governed by and construed and enforced
        in
        accordance with the internal laws of the State of New York, without regard
        to
        the principles of conflicts of law thereof. Each party agrees that all legal
        proceedings concerning the interpretations, enforcement and defense of the
        transactions contemplated by this Agreement and any other Transaction Documents
        (whether brought against a party hereto or its respective affiliates, directors,
        officers, shareholders, employees or agents) shall be commenced exclusively
        in
        the state and federal courts sitting in the City of New York. Each party
        hereby
        irrevocably submits to the exclusive jurisdiction of the state or federal
        courts
        sitting in the City of New York, borough of Manhattan for the adjudication
        of
        any dispute hereunder or in connection herewith or with any transaction
        contemplated hereby or discussed herein (including with respect to the
        enforcement of any of the Transaction Documents), and hereby irrevocably
        waives,
        and agrees not to assert in any suit, action or proceeding, any claim that
        it is
        not personally subject to the jurisdiction of any such court, that such suit,
        action or proceeding is improper or inconvenient 

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      venue
        for
        such proceeding. Each party hereby irrevocably waives personal service of
        process and consents to process being served in any such suit, action or
        proceeding by mailing a copy thereof via registered or certified mail or
        overnight delivery (with evidence of delivery) to such party at the address
        in
        effect for notices to it under this Agreement and agrees that such service
        shall
        constitute good and sufficient service of process and notice thereof. Nothing
        contained herein shall be deemed to limit in any way any right to serve process
        in any manner permitted by law. The parties hereby waive all rights to a
        trial
        by jury. If either party shall commence an action or proceeding to enforce
        any
        provisions of the Transaction Documents, then the prevailing party in such
        action or proceeding shall be reimbursed by the other party for its attorneys’
        fees and other costs and expenses incurred with the investigation, preparation
        and prosecution of such action or proceeding.

       

      5.10  Survival.
        The
        representations and warranties contained herein shall survive the Closing
        and
        the delivery, exercise and/or conversion of the Debentures, as applicable
        for
        the applicable statue of limitations.

       

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

       

      5.12  Severability.
        If any
        provision of this Agreement is held to be invalid or unenforceable in any
        respect, the validity and enforceability of the remaining terms and provisions
        of this Agreement shall not in any way be affected or impaired thereby and
        the
        parties will attempt to agree upon a valid and enforceable provision that
        is a
        reasonable substitute therefor, and upon so agreeing, shall incorporate such
        substitute provision in this Agreement.

       

      5.13  Rescission
        and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) the Transaction Documents, whenever any Purchaser
        exercises a right, election, demand or option under a Transaction Document
        and
        the Company does not timely perform its related obligations within the periods
        therein provided, then such Purchaser may rescind or withdraw, in its sole
        discretion from time to time upon written notice to the Company, any relevant
        notice, demand or election in whole or in part without prejudice to its future
        actions and rights.

       

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

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

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


       

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

       

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

       

      5.18  Independent
        Nature of Purchasers’ Obligations and Rights.
        The
        obligations of each Purchaser under any Transaction Document are several
        and not
        joint with the obligations of any other Purchaser, and no Purchaser shall
        be
        responsible in any way for the performance of the obligations of any other
        Purchaser under any Transaction Document. Nothing contained herein or in
        any
        Transaction Document, and no action taken by any Purchaser pursuant thereto,
        shall be 

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      deemed
        to
        constitute the Purchasers as a partnership, an association, a joint venture
        or
        any other kind of entity, or create a presumption that the Purchasers are
        in any
        way acting in concert or as a group with respect to such obligations or the
        transactions contemplated by the Transaction Documents. Each Purchaser shall
        be
        entitled to independently protect and enforce its rights, including without
        limitation the rights arising out of this Agreement or out of the other
        Transaction Documents, and it shall not be necessary for any other Purchaser
        to
        be joined as an additional party in any proceeding for such purpose. Each
        Purchaser has been represented by its own separate legal counsel in their
        review
        and negotiation of the Transaction Documents. For reasons of administrative
        convenience only, Purchasers and their respective counsel have chosen to
        communicate with the Company through FW. FW does not represent all of the
        Purchasers but only DunKnight Telecom Partners LLC. The Company has elected
        to
        provide all Purchasers with the same terms and Transaction Documents for
        the
        convenience of the Company and not because it was required or requested to
        do so
        by the Purchasers.

       

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

       

      5.20  Construction.
        The
        parties agree that each of them and/or their respective counsel has reviewed
        and
        had an opportunity to revise the Transaction Documents and, therefore, the
        normal rule of construction to the effect that any ambiguities are to be
        resolved against the drafting party shall not be employed in the interpretation
        of the Transaction Documents or any amendments hereto.

       

      (Signature
        Pages Follow)

       


      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      


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

       

      
        	
                DSL.NET,
                  INC.

                 

              	
                Address
                  for Notice:

              
	
                By:  
                  /s/ Kirby G. Pickle

                
                  

                

                Name:
                  Kirby G. Pickle

                Title:
                  President & Chief Executive Officer

              	
                DSL.NET, Inc.

                545 Long Wharf Drive

                New Haven, CT 06511 

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

                Edwards
                  Angell Palmer & Dodge LLP

                111
                  Huntington Avenue

                Boston,
                  MA 02199

                Attn:
                  Jeffrey Held, Esq.

                 

              	 


      

      


      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGE FOR PURCHASER(S) FOLLOWS]

       


      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      


      [PURCHASER
        SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

      


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

       

      Name
        of
        Purchaser:  DunKnight Telecom Partners LLC

      
        
          

        

      

      Signature
        of Authorized Signatory of Purchaser:
/s/
        Keir Kleinknecht 
        
          

        

        Name
          of
          Authorized Signatory:  Keir Kleinknecht

      

      
        

      

      Title
        of
        Authorized Signatory:   President 
        
          

        

      

      Email
        Address of Purchaser: 
        
          

        

      

      


      Address
        for Notice of Purchaser: 
        
          

        

      

      


      


      


      


      Address
        for Delivery of Debentures for Purchaser (if not same as above):

      


      


      


      


      


      Subscription
        Amount: $8,000,000 face value

      


      


      


      



      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      


      Annex
        A

      


      CLOSING
        STATEMENT

      


      Pursuant
        to the attached Securities Purchase Agreement, dated as of the date thereof,
        the
        Purchasers shall purchase up to $8,000,000 in principal face amount of
        Debentures from DSL.net, Inc. (the “Company”).
        All
        funds will be wired directly to the Company. All funds will be disbursed
        in
        accordance with this Closing Statement. 

      


      Disbursement
        Date: November
        ___, 2005

      


      
        	
                I.
                  PURCHASE
                  PRICE

              	 
	
                Gross
                  Proceeds to be Received

              	
                $6,000,000.00

              
	 	 
	
                II. DISBURSEMENTS

              	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	
                Total
                  Amount Disbursed:

              	
                $

              
	 	 
	 	 
	 	 
	
                WIRE
                  INSTRUCTIONS:

                 

                To
                  be provided by the Company under separate writing. 

                 

              	 
	 	 
	 	 


      

      


      


      



      
        
          
          

        

        
          33

          
            

          

        

        
          
          

          
          

        

      



      


      November
        2, 2005

      


      


      Securities
        Purchase Agreement - Company Disclosure Schedules

      


      Reference
        is made to that certain Securities Purchase Agreement dated of even date
        herewith (the “Agreement”)
        by and
        between DSL.net, Inc. (the “Company”)
        and
        DunKnight Telecom Partners LLC (“DunKnight”).
        By
        this reference the following disclosure schedules of the Company are attached
        to
        and incorporated into the Agreement, and any disclosures set forth herein
        referencing any specific section of the Agreement shall apply equally to
        any
        other section of the Agreement not so referenced for which such disclosure
        would
        otherwise be applicable. Capitalized terms used herein and not otherwise
        defined
        herein shall have the meanings ascribed to them in the Agreement. Headings
        to
        schedule numbers used herein are for identification purposes only and shall
        not
        be deemed to provide substantive meaning or content of any nature
        whatsoever.

      


      Schedules
        3.1(a) & (b) - Subsidiaries

      


      
        	
                Subsidiary

              	
                State
                  of 

                Organization

              	
                Good
                  

                Standing

              	
                Does
                  Not 

                Hold
                  

                Assets

              	
                Regulated

                CLEC

              
	
                DSLnet
                  Communications, LLC

              	
                DE

              	
                Yes

              	 	
                X

              
	
                Vector
                  Internet Services, Inc.

              	
                MN

              	
                Yes

              	 	 
	
                DSLnet
                  Atlantic, LLC

              	
                DE

              	
                Yes

              	 	 
	
                DSLnet
                  Communications VA, Inc.

              	
                VA

              	
                Yes

              	 	
                X

              
	
                Tycho
                  Networks, Inc.

              	
                DE

              	
                Yes

              	
                X

              	 
	
                DSLnet
                  Communications Puerto Rico, Inc.

              	
                DE

              	
                No
                  (the State 

                of
                  Delaware 

                has
                  voided this 

                entity’s
                  charter 

                and
                  this entity 

                would
                  need to 

                seek
                  

                reinstatement
                  

                to
                  come back

                 into
                  good 

                standing)

              	
                X
                  (other 

                than
                  a 

                Puerto
                  

                Rico
                  

                CLEC
                  

                License)

              	
                X

              


      

      


      Certain
        of the foregoing Subsidiaries of the Company are guarantor signatories to,
        and
        the Company has pledged its equity ownership in such subsidiaries to DBTCA
        (as
        defined below), as agent, under, that Agency, Guaranty and Security Agreement
        dated July 18, 2003 (the “2003
        Security Agreement”)
        by and
        among the Company, VantagePoint Venture Partners Q, III, L.P., VantagePoint
        Venture Partners III, L.P., VantagePoint Communications Partners, L.P., and
        VantagePoint Venture Partners 1996, L.P. (collectively “VantagePoint”),
        Deutsche Bank AG, London (“DB”
        and
        together with VantagePoint, the “Terminating
        Senior Lenders”),
        and
        Deutsche Bank Trust Company Americas, as agent for the Terminating Senior
        Lenders (“DBTCA”).
        As
        the initial proceeds of the transactions contemplated by the Agreement will,
        among other things, be used to fully satisfy the Company’s indebtedness to the
        Terminating Senior Lenders secured by the 2003 Security Agreement, the Lien
        of
        DBTCA, as agent, on the pledged equity securities of such guarantor signatories
        to the 2003 Security Agreement will be released and of no further force or
        effect upon the Company’s satisfaction of its indebtedness to the Terminating
        Senior Lenders, to be effected commensurate with the Closing. 

      


      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      Schedule
        3.1(d) - No Conflicts

      


      The
        Transaction Documents will create a Lien in favor of the Purchaser on the
        assets
        of the Company and of certain Subsidiaries of the Company, as detailed in
        the
        Security Agreement. 

      


      Certain
        contractual obligations of the Company are being terminated under that certain
        Implementation Agreement, being entered into by and among the Terminating
        Senior
        Lenders and the Company in connection with the transactions contemplated
        by the
        Transaction Documents. Reference is made to the Company’s disclosure concerning
        the Liens of the Terminating Senior Lenders, in Schedules 3.1(a) and (b),
        above.


      


      In
        addition, reference is made to the Laurus consent, in Schedule 3.1(e), below.
        

      


      Schedule
        3.1(e) - No Filing Consents and Approvals

      


      The
        Company requires and has obtained the consent of Laurus and the Terminating
        Senior Lenders to the transactions contemplated by Transaction
        Documents.

      


      Schedule
        3.1(g) - Capitalization

      


      As
        of the
        moment immediately preceding the consummation of the transactions contemplated
        by the Transaction Documents, the Company’s capitalization is as follows:


      


      
        	
                Capitalization

              	
                Reserved
                  &

              
	 	
                Outstanding

              
	 	
                at
                  10/31/05

              
	
                800,000,000
                  shares of authorized common stock, $.0005 par value per share
                  

              	 
	
                Issued
                  and outstanding common stock:

              	
                233,620,817
                  

              
	
                Common
                  shares reserved for:

              	 
	
                Warrants
                  to purchase common stock at various exercise prices:

              	
                192,212,192
                  

              
	
                $4,250,000
                  debt convertible to purchase common stock at exercise price of
                  $0.28 per
                  share:

              	
                 
                  15,178,571 

              
	
                Options
                  outstanding under the Company's stock option plans at various exercise
                  prices:

              	
                 
                  32,823,146 

              
	
                Total
                  shares of common stock issued, outstanding and reserved
                  for:

              	
                473,834,726
                  

              
	 	 
	
                20,000,000
                  shares of authorized preferred stock, $.001 par value per
                  share

              	 
	
                Issued
                  and outstanding preferred stock (Series Z preferred
                  stock):

              	
                14,000
                  

              
	 	 


      

      


      Except
        as
        set forth in the Company’s SEC Reports, and employee stock options granted or
        expired in the ordinary course of business, there are no outstanding options,
        warrants, or obligations convertible into Common Stock of the Company. In
        connection with the Company’s payoff of its indebtedness to the Terminating
        Senior Lenders, the Terminating Senior Lenders are canceling all outstanding
        warrants held by the Terminating Senior Lenders. The rights of the various
        Terminating Senior Lenders under existing stockholders agreements to which
        the


       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      Terminating
        Senior Lenders and the Company are party will also terminate with the Company’s
        payoff of its indebtedness to the Terminating Senior Lenders. 

      


      Schedule
        3.1(i) - Material Changes

      


      The
        Company is in receipt of commitment letters from the Terminating Senior Lenders
        regarding, among other things, the cancellation and/or redemption of their
        senior secured debt, common stock purchase warrants and Series Z Preferred
        Stock
        of the Company. 

      


      Schedule
        3.1 (j) - Litigation

      


      There
        is
        currently pending, in addition to those matters set forth in the SEC Reports,
        a
        claim brought by a former VISI (as defined in the Security Agreement) sales
        representative, who was terminated for performance in 2005 and subsequently
        brought a whistleblower claim against the Company and VISI before the U.S.
        Department of Labor (the “DOL”),
        alleging wrongful termination. The Company denies the allegations, which
        it
        believes to be without merit, and has filed a reply to that effect with the
        DOL
        and is currently awaiting further disposition by such authorities. The Company
        has defended its position and the position of VISI and intends to continue
        to do
        so. 

      


      Schedule
        3.1(l) - Compliance

      


      The
        Company has received notice of a claim in the amount of approximately $43K
        from
        its landlord for its headquarters facilities at 545 Long Wharf Drive, New
        Haven
        Connecticut for payment of alleged back operating expenses for 2003 and 2004.
        The Company has disputed those charges.

      


      On
        October 24, 2005, DSLnet Communications, LLC, along with approximately 60%
        of
        the other competitive local exchange carriers (“CLECs”)
        licensed in the State of Connecticut, received from the Connecticut Department
        of Public Utility Control (the “CTDPUC”),
        a
        notice of violation of certain local service provider exit guidelines
        promulgated by the CTDPUC (the “Notice”).
        In
        the wake of the number of bankruptcies and general market conditions affecting
        the telecommunications industry, in 2004, the CTDPUC adopted guidelines
        requiring CLECs that are providing local service to post a $25,000 surety
        bond.
        As set forth in the Notice, only approximately 40% of licensed
        telecommunications providers in the State of Connecticut have complied with
        the
        bonding requirements, and the notice of violation is being initiated to notify
        carriers of their non-compliance and to ensure their compliance in the future.
        DSLnet Communications, LLC is required to respond to the Notice by November
        7,
        2005.

      


      Schedule
        3.1(m) - Regulatory Permits

      


      On
        October 13, 2005, the Company received a notice from The American Stock Exchange
        (“Amex”)
        that
        the Company’s common stock may not be suitable for auction market trading as a
        result of its low trading prices over the last six months and advising the
        Company, in accordance with Section 1003(f)(v) of the Amex Company Guide,
        that
        Amex deems it appropriate for the Company to effect a reverse split of its
        shares to address its trading price within a reasonable amount of time. If
        the
        Company does not effect a reverse stock split within a reasonable amount
        of
        time, Amex may determine that the Company does not meet Section 1003(f)(v)
        of
        the Amex Company Guide and, in such event, the Company would become subject
        to
        the Amex delisting procedures. 


      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      


      


      Schedule
        3.1(n) - Title to Assets

      


      The
        Company owns no real property. The Company holds title to its assets subject
        to
        the Permitted Liens (as defined in the Security Agreement). The Terminating
        Senior Lenders currently hold a blanket Lien on all assets of the Company
        and on
        assets of the guarantor signatories to the 2003 Security Agreement. Upon
        the
        satisfaction of the Company’s indebtedness to the Terminating Senior Lenders
        with proceeds of the transactions contemplated by the Agreement, such Liens
        of
        the Terminating Senior Lenders will be released and of no further force or
        effect. 

      


      Schedule
        3.1(q) - Transactions with Affiliates and
        Employees

      


      In
        connection with the Closing, the Board of Directors has authorized a one-time
        transaction bonus for Kirby G. “Buddy” Pickle, the Company’s chief executive
        officer, in the amount of $350K (an amount equal to 1X Mr. Pickle’s annual base
        salary), as permitted by Mr. Pickle’s employment agreement with the Company.


      


      Schedule
        3.1(s) - Certain Fees

      


      The
        Company engaged Broadview International, a division of Jefferies & Company,
        Inc., as its investment banker and financial advisor for which the Company
        will
        pay fees to such party in connection with the transactions contemplated by
        the
        Transaction Documents. The Company also engaged various other professional
        advisors, including legal counsel, to whom it will pay fees for services
        rendered in connection with the transactions contemplated by the Transaction
        Documents.

      


      Schedule
        3.1(dd) - Accountants

      


      Carlin,
        Charron & Rosen, LLP, 628 Hebron Avenue, Building #3, Glastonbury, CT 06033,
        is the Company’s independent registered public accounting firm.

      


      Schedule
        3.1(ee) - Seniority

      


      As
        of the
        Closing, and upon the Company’s satisfaction of its indebtedness to the
        Terminating Senior Lenders, the Debentures will be senior in right to all
        indebtedness other than Permitted Liens, as such term is defined in the
        Transaction Documents.

      


      Schedule
        4.7 - Use of Proceeds

      


      The
        Company shall use the proceeds of the Debenture issuances, net of transaction
        fees and expenses and those certain payments contemplated by the Transaction
        Documents, to pay off its senior secured debt held by the Terminating Senior
        Lenders and to cancel and redeem its Series Z Preferred Stock held by
        VantagePoint and its common stock purchase warrants held by the Terminating
        Senior Lenders, for an aggregate payment of $5,500,000. 

      


      
        
          
          

        

        
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