Document:

WWW.EXFILE.COM, INC. -- 14588 -- DSL.NET, INC. -- EXHIBIT 10.5 TO FORM 8-K

    

    EXHIBIT
      10.5

    

    THE
      ISSUANCE AND SALE OF THE SECURITIES HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
      LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
      BY
      THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
      HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
      IS
      NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
      144A UNDER SAID ACT.

    

    

    SUBORDINATED
      SECURED
      PROMISSORY NOTE

     

    
      	$13,002,000	
              August
                28, 2006 

            

    

     

           

    FOR
      VALUE
      RECEIVED, the undersigned, DSL.net, Inc., a Delaware corporation (“Borrower”),
      hereby promises to pay to MDS Acquisition, Inc., a Delaware corporation
      (“Lender”),
      or
      order, the principal sum of Thirteen Million Two Thousand Dollars ($13,002,000),
      together with accrued interest as provided herein. This Note is being issued
      pursuant to the Purchase Agreement, dated as of the date hereof, between
      Borrower, Lender and Lender’s parent company, MegaPath Inc. (the “Purchase
      Agreement”).

    

    A.  Interest.
      Interest shall accrue with respect to the principal sum hereunder at eight
      percent (8%) per annum. However, if an Event of Default, as defined herein,
      occurs and is continuing, then interest shall accrue at ten percent (10%) per
      annum. Interest payable hereunder shall be calculated on the basis of a three
      hundred sixty (360) day year for actual days elapsed. 

    

    B.  Payment.

    

    1.  Scheduled
      Payment.
      The
      principal indebtedness, together with all accrued interest, shall be payable
      in
      full on December 31, 2007 (the “Maturity
      Date”).

    

    2.  Prepayment.
      Borrower shall not have the right to prepay, in whole or in part, the principal
      of this Note without the prior written consent of Lender, given in its sole
      discretion.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    3.  Form
      of Payment.
      Principal and interest and all other amounts due hereunder are to be paid in
      lawful money of the United States of America in federal or other immediately
      available funds.

    

    C.  Security
      Interest and Subordination.

    

    1.  Security
      Interest.
      Borrower’s obligations hereunder are secured by Borrower’s grant of a security
      interest to Lender in all of Borrower’s personal property (the “Collateral”)
      pursuant to the Security Agreement, dated as of the date hereof, between
      Borrower and Lender (the “Security
      Agreement”).

    

    2.  Subordination.
      Lender’s Lien against the Collateral is subordinated to prior existing Liens
      granted to other lenders to Borrower, to the extent provided in the
      Subordination Agreement, dated as of the date hereof, by and among Borrower,
      Lender and Laurus Master Fund, Ltd. (the “Subordination
      Agreement”).

     

    D.  Events
      of Default.
      During
      the continuance of an Event of Default, as defined in the Security Agreement,
      Lender shall have the right to exercise its rights and remedies with respect
      to
      Borrower and the Collateral as provided in the Security Agreement.

    

    E.  Other
      Provisions.
      

     

    1.  Definitions.
      Capitalized terms used herein without definition shall have the meanings
      assigned to them in the Security Agreement.

    

    2.  Governing
      Law; Venue.
      This
      Note shall be governed by the laws of the State of Delaware, without giving
      effect to conflicts of law principles. All actions or proceedings arising in
      connection with this Note shall be conducted in accordance with Section 8(a)
      of
      the Purchase Agreement.

    

    3.  Notices.
      Any
      notice or communication required or desired to be served, given or delivered
      hereunder shall be in the form and manner specified below, and shall be
      addressed to the party to be notified as provided in Section 8(f) of the
      Purchase Agreement.

    

    4.  Lender’s
      Rights; Borrower Waivers.
      Lender’s acceptance of partial or delinquent payment from Borrower hereunder, or
      Lender’s failure to exercise any right hereunder, shall not constitute a waiver
      of any obligation of Borrower hereunder, or any right of Lender hereunder,
      and
      shall not affect in any way the right to require full performance at any time
      thereafter. Borrower waives presentment, diligence, demand of payment, notice,
      protest and all other demands and notices in connection with the delivery,
      acceptance, performance, default or enforcement of this Note. In any action
      on
      this Note, Lender need not produce or file the original of this Note, but need
      only file a photocopy of this Note certified by Lender be a true and correct
      copy of this Note in all material respects.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    5.  Enforcement
      Costs.
      Borrower shall pay all costs and expenses, including reasonable and documented
      attorneys’ fees and expenses Lender expends or incurs in connection with the
      enforcement of this Note, the collection of any sums due hereunder, any actions
      for declaratory relief in any way related to this Note, or the protection or
      preservation of any rights of the holder hereunder.

    

    6.  Severability.
      Whenever possible each provision of this Note shall be interpreted in such
      manner as to be effective and valid under applicable law, but if any provision
      is prohibited by or invalid under applicable law, it shall be ineffective to
      the
      extent of such prohibition or invalidity, without invalidating the remainder
      of
      the provision or the remaining provisions of this Note.

     

    7.  Amendment
      Provisions.
      This
      Note may not be amended or modified, nor may any of its terms be waived, except
      by written instruments signed by Borrower and Lender.

    

    8.  Binding
      Effect.
      This
      Note shall be binding upon, and shall inure to the benefit of, Borrower and
      Lender and their respective successors and assigns; provided,
      however,
      that
      (i) Borrower’s rights and obligations shall not be assigned or delegated without
      Lender’s prior written consent, given in its sole discretion, and any purported
      assignment or delegation without such consent shall be void ab initio,
      and
      (ii) Lender may not assign, transfer or otherwise convey this Note to any Person
      that is not an Affiliate of Lender.

    

    9.  Time
      of Essence.
      Time is
      of the essence of each and every provision of this Note.

    

    10.  Headings.
      Section
      headings used in this Note have been set forth herein for convenience of
      reference only. Unless the contrary is compelled by the context, everything
      contained in each section hereof applies equally to this entire
      Note.

     

    
      	 	
              DSL.net,
                Inc.

              

              By:
                /s/
                David F.
                Struwas                                    
                

              Name:
                David
                F. Struwas________________

              Title:
                President
                & Chief Executive
                Officer         

            

    

    

     

    
      
        
        

      

      
        3WWW.EXFILE.COM, INC. -- 14588 -- DSL.NET, INC. -- EXHIBIT 10.6 TO FORM 8-K

    EXHIBIT
      10.6

     

    SECURITY
      AGREEMENT

     

    This
      Security Agreement (this
      “Agreement”)
      is
      entered into as of August 28, 2006, between DSL.net., Inc., a Delaware
      corporation (“Borrower”),
      and
      MDS Acquisition, Inc., a Delaware corporation (“Lender”).
      

     

    RECITALS

     

    WHEREAS,
      Borrower has issued to Lender (i) four (4) subordinated secured convertible
      promissory notes in the original aggregate principal amount of Two Million
      Dollars ($2,000,000)(the “Convertible
      Notes”),
      and
      (ii) a subordinated secured promissory note in the principal amount of Thirteen
      Million Two Thousand Dollars ($13,002,000)(the “Nonconvertible
      Note”,
      and
      together with the Convertible Notes the “Notes”),
      pursuant to the Purchase Agreement, dated as of August 22, 2006, between
      Borrower, Lender and Lender’s parent company, MegaPath Inc. (the “Purchase
      Agreement”).
      The
      parties wish to enter into this Agreement to secure Borrower’s obligations under
      the Notes.

     

    NOW,
      THEREFORE, IT IS AGREED THAT:

     

    1.  Definitions.
      Where
      applicable and except as otherwise defined herein, terms used in this Agreement
      shall have the meanings assigned to them in the UCC. For purposes of this
      Agreement, the following terms shall have the following meanings:

     

    (a)  “Affiliate”
means,
      with respect to any Person, any Person that owns or controls directly or
      indirectly such Person, any Person that controls or is controlled by or is
      under
      common control with such Person, and each of such Person’s senior executive
      officers, directors, and partners.

     

    (b)  “Borrower’s
      Books”
means
      all of Borrower’s books and records including: ledgers; records concerning
      Borrower’s assets or liabilities, the Collateral, business operations or
      financial condition; and all computer programs, or tape files, and the
      equipment, containing such information.

     

    (c)  “Collateral”
means
      the personal property described in Exhibit A.

     

    (d)  “Change
      of Control”
means
      (a)
      any
      merger or consolidation of Borrower with or into any other corporation or other
      entity, or any other reorganization of Borrower, in which the holders of
      Borrower’s outstanding capital stock immediately prior to such transaction do
      not, immediately after such transaction, retain a majority of the voting power
      of the surviving entity or its parent, other than a transaction which results
      in
      Lender or an Affiliate of Lender holding such majority voting power, (b) any
      Person or any Persons (other than Lender and/or Affiliate(s) of Lender) acting
      together that would constitute a “group” for purposes of Section 13(d) under the
      Securities Exchange Act of 1934, or any successor provision thereto, shall
      acquire beneficial ownership (within the meaning of Rule 13d-3 under the
      Securities Exchange Act, or any successor provision thereto) in a single
      transaction or a series of related transactions, of more than 50% of

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    the
      aggregate voting power of Borrower’s equity securities; or (c) any sale of all
      or substantially all of Borrower’s assets, other than a sale to Lender or an
      Affiliate of Lender.

     

    (e)  “Contingent
      Obligation”
means,
      as applied to any Person, any direct or indirect liability, contingent or
      otherwise, of that Person with respect to (i) any indebtedness, lease,
      dividend, letter of credit or other obligation of another, including any such
      obligation directly or indirectly guaranteed, endorsed, co-made or discounted
      or
      sold with recourse by that Person, or in respect of which that Person is
      otherwise directly or indirectly liable; (ii) any obligations with respect
      to undrawn letters of credit, corporate credit cards, or merchant services
      issued or provided for the account of that Person; and (iii) all
      obligations arising under any interest rate, currency or commodity swap
      agreement, interest rate cap agreement, interest rate collar agreement, or
      other
      agreement or arrangement designed to protect such Person against fluctuation
      in
      interest rates, currency exchange rates or commodity prices; provided, however,
      that the term “Contingent Obligation” shall not include endorsements for
      collection or deposit in the ordinary course of business. The amount of any
      Contingent Obligation shall be deemed to be an amount equal to the stated or
      determined amount of the primary obligation in respect of which such Contingent
      Obligation is made or, if not stated or determinable, the maximum reasonably
      anticipated liability in respect thereof as determined by such Person in good
      faith; provided, however, that such amount shall not in any event exceed the
      maximum amount of the obligations under the guarantee or other support
      arrangement.

     

    (f)  “Copyrights”
means
      any and all copyright rights, copyright applications, copyright registrations
      and like protections in each work or authorship and derivative work thereof,
      whether published or unpublished and whether or not the same also constitutes
      a
      trade secret, now or hereafter existing, created, acquired or held.

     

    (g)  “Equipment”
means
      all present and future machinery, equipment, tenant improvements, furniture,
      fixtures, vehicles, tools, parts and attachments in which Borrower has any
      interest.

     

    (h)  “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as amended, and the
      regulations thereunder.

     

    (i)  “GAAP”
means
      generally accepted accounting principles as from time to time set forth in
      the
      opinions of the Accounting Principles Board of the American Institute of
      Certified Public Accountants and in statements by the Financial Accounting
      Standards Board or in such opinions and statements of such other entities as
      shall be approved by a significant segment of the accounting profession in
      the
      United States.

     

    (j)  “Indebtedness”
means
      (a) all indebtedness for borrowed money or the deferred purchase price of
      property or services, including reimbursement and other obligations with respect
      to surety bonds and letters of credit, (b) all obligations evidenced by
      notes, bonds, debentures or similar instruments, (c) all capital lease
      obligations and (d) all Contingent Obligations.

     

    (k)  “Intellectual
      Property Collateral”
means
      all of Borrower’s right, title, and interest in and to the
      following:

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	i.   
              	
              Copyrights,
                Trademarks and Patents;

            

    

     

    
      	ii.   
              	
              All
                trade secrets, and all intellectual property rights in computer software
                and computer software products now or hereafter existing, created,
                acquired or held;

            

    

     

    
      	iii.   
              	
              All
                design rights which may be available to Borrower now or hereafter
                existing, created, acquired or
                held;

            

    

     

    
      	iv.   
              	
              All
                claims for damages by way of past, present and future infringement
                of any
                of the rights included above, with the right, but not the obligation,
                to
                sue for and collect such damages for said use or infringement of
                the
                intellectual property rights identified
                above;

            

    

     

    
      	v.   
              	
              All
                licenses or other rights to use any of the Copyrights, Patents or
                Trademarks, and all license fees and royalties arising from such
                use to
                the extent permitted by such license or rights;

            

    

     

    
      	vi.   
              	
              All
                amendments, renewals and extensions of any of the Copyrights, Trademarks
                or Patents; and

            

    

     

    
      	vii.   
              	
              All
                proceeds and products of the foregoing, including all payments under
                insurance or any indemnity or warranty payable in respect of any
                of the
                foregoing.

            

    

     

    (l)  “Inventory”
means
      all present and future inventory in which Borrower has any interest, including
      merchandise, raw materials, parts, supplies, packing and shipping materials,
      work in process and finished products intended for sale or lease or to be
      furnished under a contract of service, of every kind and description now or
      at
      any time hereafter owned by or in the custody or possession, actual or
      constructive, of Borrower, including such inventory as is temporarily out of
      its
      custody or possession or in transit and including any returns upon any accounts
      or other proceeds, including insurance proceeds, resulting from the sale or
      disposition of any of the foregoing and any documents of title representing
      any
      of the above, and Borrower’s Books relating to any of the
      foregoing.

     

    (m)  “Investment”
means
      any beneficial ownership of (including stock, partnership interest or other
      securities) any Person, or any loan, advance or capital contribution to any
      Person.

     

    (n)  “Lien”
means
      any lien, pledge, mortgage, or security interest.

     

    (o)  “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the business operations or condition (financial
      or otherwise) of the Borrower and its Subsidiaries taken as a whole or (ii)
      the
      ability of the Borrower to repay the Obligations or otherwise perform its
      obligations under the Notes or (iii) the priority of Lender’s security interests
      in the Collateral.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (p)  “Patents”
means
      all patents, patent applications and like protections including improvements,
      divisions, continuations, renewals, reissues, extensions and
      continuations-in-part of the same.

     

    (q)  “Permitted
      Investments”
      means:

     

    
      	i.  	
              Investments
                existing on the date stated above;
                and

            

    

     

    
      	ii.  	
              (i)
                marketable direct obligations issued or unconditionally guaranteed
                by the
                United States of America or any agency or any State thereof maturing
                within one (1) year from the date of acquisition thereof and (ii)
                commercial paper maturing no more than one (1) year from the date
                of
                creation thereof and currently having rating of at least A-2 or P-2
                from
                either Standard & Poor’s Corporation or Moody’s Investors Service.
                

            

    

     

    (r)  “Permitted
      Liens”
means:
      (i) Liens in favor of Lender, (ii) Liens in favor of prior secured creditors
      described in Exhibit B; (iii) Liens for taxes, assessments or other governmental
      charges which are not yet due and payable or which are being contested in good
      faith with a reserve or other appropriate provision having been made therefore;
      (iv) Liens of landlords (including security deposits under leases), carriers,
      warehousemen, mechanics, materialmen and other similar liens imposed by law,
      which are incurred in the ordinary course of business for sums not more than
      ninety (90) days delinquent or which are being contested in good faith;
provided
      that a
      reserve or other appropriate provision shall have been made therefor; (v) Liens
      incurred or deposits made in the ordinary course of business in connection
      with
      workers’ compensation, unemployment insurance and other types of social
      security, or to secure the performance of tenders, statutory obligations,
      surety, stay, customs and appeal bonds, regulatory bonds, bids, leases,
      government contracts, trade contracts, performance and return of money bonds
      and
      other similar obligations (exclusive of obligations for the payment of borrowed
      money); (vi) Liens securing contingent reimbursement obligations under letters
      of credit; (vii) Liens on equipment and related software to secure (1) the
      purchase price and related soft costs of such equipment and related software,
      as
      applicable, or (2) lease obligations or indebtedness incurred solely for
      the purpose of financing the acquisition of such equipment and related software;
      provided that
      such
      Liens are confined solely to the equipment and related software so acquired,
      and
      the proceeds thereof, and the amount secured does not exceed the acquisition
      price thereof; (viii) liens on equipment and related software when acquired;
      (ix) licenses or sublicenses and any interest or title of a licensor or licensee
      under any license or sublicense; (x) Liens on earnest money deposits required
      under a letter of intent or purchase agreement; (xi) Liens on escrowed cash,
      representing a portion of the proceeds of sales or other transactions,
      established to satisfy contingent post closing obligations (including earn-outs,
      indemnities and working capital adjustments); (xii) leases or subleases granted
      in the ordinary course of business; (xiii) Liens in favor of customs and revenue
      authorities which secure payment of customs duties in connection with the
      importation of goods; (xiv) easements, rights-of-way, restrictions and other
      similar encumbrances incurred in the ordinary course of business and
      encumbrances consisting of zoning restrictions, easements, licenses,
      restrictions on the use of real property or minor imperfections in title thereto
      which, in the aggregate, are not material in amount, and which do not, in the
      aggregate, materially detract from the value of the real property of Borrower;
      (xv) Liens consisting of bankers’ liens and rights of setoff, in each case,
      arising by 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    operation
      of law, and Liens on documents presented in letter of credit drawings; (xvi)
      assignments of uncollectible accounts receivable to collection agencies in
      the
      ordinary course of business; and (xvii) any zoning or similar law or right
      reserved to or vested in any governmental authority to control or regulate
      the
      use of any real property.

     

    (s)  “Permitted
      Indebtedness”
      means:

     

    (i)  Indebtedness
      existing on the date hereof and disclosed in the Schedule hereto;

     

    (ii)  Indebtedness
      secured by a Lien described in clause (vii) of the defined term “Permitted
      Liens”; 

     

    (iii)  Subordinated
      Debt; and

     

    (iv)  Indebtedness
      incurred to refinance any Indebtedness permitted under the foregoing clauses,
      provided that (1) the principal amount of such Indebtedness does not exceed
      the principal amount of the Indebtedness being refinanced, (2) such
      Indebtedness has a Weighted Average Life to Maturity equal to or greater than
      the Weighted Average Life to Maturity of the Indebtedness being refinanced,
      and
      (3) the interest rate with respect to such Indebtedness is less than or
      equal to that of the Indebtedness being refinanced. “Weighted Average Life to
      Maturity” means, when applied to any Indebtedness at any date, the number of
      years obtained by dividing (a) the sum of the products obtained by
      multiplying (x) the amount of each then remaining installment, sinking
      fund, serial maturity or other required payments of principal, including payment
      at final maturity, in respect thereof, by (y) the number of years
      (calculated to the nearest one-twelfth) that will elapse between such date
      and
      the making of such payment, by (b) the then outstanding principal amount of
      such Indebtedness.

     

    (t)  “Person”
means
      any individual, sole proprietorship, partnership, limited liability company,
      joint venture, trust, unincorporated organization, association, corporation,
      institution, public benefit corporation, firm, joint stock company, estate,
      entity or governmental agency.

     

    (u)  “Regulated
      Entity”
means
      DSLnet Communications, LLC and DSLnet Communications VA, Inc.

     

    (v)  “Subordinated
      Debt”
means
      any indebtedness incurred by Borrower that is subordinated to the debt owing
      by
      Borrower to Lender on terms acceptable to Lender (and identified as being such
      by Borrower and Lender).

     

    (w)  “Subsidiary”
means
      any corporation, company or partnership in which (i) any general partnership
      interest or (ii) more than 50% of the stock or other units of ownership which
      by
      the terms thereof has the ordinary voting power to elect the board of directors,
      managers or trustees of the entity, at the time as of which any determination
      is
      being made, is owned by Borrower, either directly or through an Affiliate of
      Borrower.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (x)  “Trademarks”
means
      any trademark and servicemark rights, whether registered or not, applications
      to
      register and registrations of the same and like protections, and the entire
      goodwill of the business of Borrower connected with and symbolized by such
      trademarks.

     

    (y)  “UCC”
means
      the Uniform Commercial Code as in effect in the State of Delaware from time
      to
      time.

     

    Capitalized
      terms used in this Agreement and not otherwise defined herein shall have the
      meanings set forth in the Purchase Agreement.

     

    2.  Grant
      of Security Interest.

     

    (a)  Security
      Interest.
      As
      security for the payment and performance of the Obligations (as defined below),
      Borrower hereby grants to Lender a continuing security interest in all of
      Borrower’s right, title and interest in and to in the Collateral. 

     

    (b)  Obligations
      Secured.
      The
      security interest granted hereunder secures payment and performance of all
      obligations of Borrower to Lender under this Agreement and all obligations
      of
      Borrower to Lender under the Notes, including all unpaid principal of the Notes,
      all interest accrued thereon, and all other amounts payable by Borrower to
      Lender under the Notes, whether due or to become due, absolute or contingent,
      liquidated or unliquidated, determined or undetermined, including any interest
      that accrues after the commencement of an Insolvency Proceeding (collectively,
      the “Obligations”).

     

    (c)  Authorization
      to File Financing Statement.
      Borrower authorizes Lender to file one or more financing statements describing
      the Collateral with the Secretary of State of the State of Delaware. Lender
      shall promptly provide Borrower with copies of all such financing statements
      filed. 

     

    3.  Affirmative
      Covenants.
      So long
      as the Obligations remain outstanding (other than contingent indemnification
      obligations), Borrower covenants to Lender that it will do all of the
      following:

     

    (a)  Good
      Standing.
      Borrower
      shall maintain its and each of its Subsidiaries’ corporate existence and good
      standing in its jurisdiction of incorporation and maintain qualification as
      a
      foreign corporation in each jurisdiction in which it is required under
      applicable law, except for those jurisdictions where Borrower determines to
      relinquish its CLEC permit or to otherwise cease providing services. Borrower
      shall maintain, and shall cause each of its Subsidiaries to maintain, in force
      all licenses, approvals and agreements, the loss of which could have a Material
      Adverse Effect.

     

    (b)  Government
      Compliance.
      Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
      funding requirements of ERISA with respect to any employee benefit plans subject
      to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply,
      with
      all statutes, laws, ordinances and government rules and regulations to which
      it
      is subject, noncompliance with which could have a Material Adverse
      Effect.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (c)  Protection
      of Collateral.
      Borrower shall keep the Collateral in good condition and repair, maintain,
      preserve, defend and protect the Collateral from loss, damage or deterioration
      (ordinary wear and tear excepted), except to the extent Borrower has determined,
      in its reasonable business judgment, that such Collateral is no longer useful
      in
      the operation of its business.

     

    (d)  Notice
      of Certain Actions; Location of Collateral.
      Borrower shall give prompt written notice to Lender of: (i) any change in the
      location of its chief executive office; (ii) any change in its corporate name;
      (iii) any change its jurisdiction of organization; and (iv) any change in its
      executive officers.

     

    (e)  Inspection.
      Upon
      reasonable prior written notice, Borrower shall provide a representative of
      Lender with access to the Collateral and all books and records relating thereto
      for the purpose of conducting an inspection and audit of the Collateral, at
      Lender’ sole cost and expense, at reasonable times during regular business
      hours.

     

    (f)  Insurance.
      Borrower shall carry and maintain in full force and effect, at its own expense
      and with financially sound and reputable insurance companies, insurance with
      respect to the Collateral in such amounts, with such deductibles and covering
      such risks as is customarily carried by companies engaged in the same or similar
      businesses of similar size and owning similar properties in the localities
      where
      it operates or as reasonably determined by its Board of Directors or executive
      officers.

     

    (g)  Taxes.
      Borrower shall make, and shall cause each of its Subsidiaries to make, due
      and
      timely payment or deposit of all material federal, state, and local taxes,
      assessments, or contributions required of it by law, and will execute and
      deliver to Lender, on demand, appropriate certificates attesting to the payment
      or deposit thereof; and Borrower will make, and will cause each of its
      Subsidiaries to make, timely payment or deposit of all material tax payments
      and
      withholding taxes required of it by applicable laws, including, but not limited
      to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
      state, and federal income taxes, and will, upon request, furnish Lender with
      proof satisfactory to Lender indicating that Borrower or such Subsidiary has
      made such payments or deposits; provided that Borrower or a Subsidiary need
      not
      make any payment if the amount or validity of such payment is being contested
      in
      good faith by appropriate proceedings and is reserved against (to the extent
      required by GAAP) by Borrower or such Subsidiary.

     

    (h)  Intellectual
      Property Rights.
      

     

    i.  Within
      forty-five (45) days after the end of each fiscal quarter, Borrower shall give
      Lender written notice of any applications or registrations of intellectual
      property rights filed with the United States Patent and Trademark Office during
      such fiscal quarter, including the date of such filing and the registration
      or
      application numbers, if any. Borrower (i)shall give Lender not less than 30
      days
      prior written notice of the filing of any applications or registrations with
      the
      United States Copyright Office, including the title of such intellectual
      property rights to be registered, as such title will appear on such applications
      or registrations, and the date such applications or registrations will be filed,
      and (ii) prior to the filing of any such applications or registrations, shall
      execute such documents as Lender may reasonably request for Lender to maintain
      its perfection in such intellectual property rights to be registered by
      Borrower, and upon the request 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    of
      Lender, shall file such documents simultaneously with the filing of any such
      applications or registrations. Upon filing any such applications or
      registrations with the United States Copyright Office, Borrower shall promptly
      provide Lender with (i) a copy of such applications or registrations, without
      the exhibits, if any, thereto, (ii) evidence of the filing of any documents
      requested by Lender to be filed for Lender to maintain the perfection and
      priority of its security interest in such intellectual property rights, and
      (iii) the date of such filing.

     

    ii.  Borrower
      shall execute and deliver such additional instruments and documents from time
      to
      time as Lender shall reasonably request to perfect and maintain the priority
      of
      Lender’s
      security interest in the Intellectual Property Collateral. Borrower shall (i)
      protect, defend and maintain the validity and enforceability of the trade
      secrets, Trademarks, Patents and Copyrights to the extent that the failure
      to do
      so could be reasonably expected to have a Material Adverse Effect, (ii) use
      commercially reasonable efforts to detect infringements of the Trademarks,
      Patents and Copyrights and promptly advise Lender in writing of material
      infringements detected and (iii) not allow any material Trademarks, Patents
      or
      Copyrights to be abandoned, forfeited or dedicated to the public without the
      written consent of Lender, which shall not be unreasonably
      withheld.

     

    iii.  Lender
      shall have the right, but not the obligation, to take, at Borrower’s sole
      expense, any actions that Borrower is required under this section to take but
      which Borrower fails to take, after 15 days’ notice to Borrower. Borrower agrees
      to reimburse and indemnify Lender for all reasonable and documented costs and
      reasonable expenses incurred in the reasonable exercise of its rights under
      this
      section.

     

    (i)  Further
      Assurances.
      From
      time to time, Borrower shall execute, deliver, file and record such further
      instruments, endorsements and other documents, and take such further action
      as
      Lender may reasonably request to perfect and continue the perfection, maintain
      the priority of, or provide notice of, Lenders’ security interest in the
      Collateral. 

     

    4.  Negative
      Covenants.
      So long
      as the Obligations remain outstanding (other than contingent indemnification
      obligations), Borrower covenants to Lender that it will not do any of the
      following:

     

    (a)  Clear
      Title.
      Grant
      or suffer to exist any Lien against any of the Collateral, other than Permitted
      Liens. 

     

    (b)  Dispositions.
      Convey,
      sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”),
      or
      permit any of its Subsidiaries to Transfer, all or any part of its material
      business properties or assets, other than: (i) Transfers of Inventory in the
      ordinary course of business; (ii) Transfers of non-exclusive licenses and
      similar arrangements for the use of the property of Borrower or its Subsidiaries
      in the ordinary course of business; or (iii) Transfers of worn-out, obsolete,
      excess or retired (i.e.,
      no
      longer actively deployed) Equipment.

     

    (c)  Indebtedness.
      Create,
      incur, assume or be or remain liable with respect to any indebtedness, or permit
      any Subsidiary so to do, other than Permitted Indebtedness.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (d)  Distributions;
      Splits; Reclassifications; Etc.
      Declare, set aside, make or pay any dividends or other distribution, payable
      in
      cash, stock, property or otherwise, with respect to any of its capital stock,
      or
      split, combine, subdivide, redeem or reclassify any of its capital stock or
      issue or authorize the issuance of any other securities in respect of, in lieu
      of or in substitution for shares of its capital stock, or purchase or otherwise
      acquire, directly or indirectly, any shares of its capital stock, or permit
      any
      Subsidiary to take any of the foregoing described actions.

     

    (e)  Investments.
      Directly or indirectly acquire or own, or make any Investment in or to any
      Person, or permit any of its Subsidiaries so to do, other than Permitted
      Investments; or maintain or invest any of its property with a Person other
      than
      Lender or permit any of its Subsidiaries to do so unless such Person has entered
      into an account control agreement with Lender in form and substance satisfactory
      to Lender; or suffer or permit any Subsidiary to be a party to, or be bound
      by,
      an agreement that restricts such Subsidiary from paying dividends or otherwise
      distributing property to Borrower.

     

    (f)  Transactions
      with Affiliates.
      Directly or indirectly enter into or permit to exist any material transaction
      with any Affiliate of Borrower except for transactions that are in the ordinary
      course of Borrower’s business, upon fair and reasonable terms that are no less
      favorable to Borrower than would be obtained in an arm’s length transaction with
      a non-affiliated Person.

     

    (g)  Subordinated
      Debt.
      Make
      any payment in respect of any Subordinated Debt, or permit any of its
      Subsidiaries to make any such payment, except in compliance with the terms
      of
      such Subordinated Debt, or amend any provision contained in any documentation
      relating to the Subordinated Debt without Lender’s prior written
      consent.

     

    (h)  [Intentionally
      Omitted].

     

    (i)  Compliance.
      Become
      an “investment company” or be controlled by an “investment company,” within the
      meaning of the Investment Company Act of 1940, or become principally engaged
      in,
      or undertake as one of its important activities, the business of extending
      credit for the purpose of purchasing or carrying margin stock, or use the
      proceeds of any loan secured hereby for such purpose; fail to meet the minimum
      funding requirements of ERISA, permit a Reportable Event or Prohibited
      Transaction, as defined in ERISA, to occur; fail to comply with the Federal
      Fair
      Labor Standards Act or violate any law or regulation, which violation could
      reasonably be expected to have a Material Adverse Effect, or a material adverse
      effect on the Collateral or the priority of Lender’s Lien on the Collateral, or
      permit any of its Subsidiaries to do any of the foregoing.

     

    (j)  Negative
      Pledge Agreements.
      Permit
      the inclusion in any contract to which Borrower becomes a party (other than
      the
      documents evidencing and relating to the loans extended by Laurus Master Fund,
      Ltd.) of any provisions that could restrict or invalidate the creation or
      enforcement of a security interest in any of Borrower’s property.

     

    (k)  Capital
      Stock.
      Issue,
      sell, pledge, dispose of, grant, encumber, authorize or propose the issuance,
      sale, pledge, disposition, grant or encumbrance of any shares of its capital
      stock of any class, or any options, warrants, convertible securities or other
      rights of any kind to 

     

    
      
        
        

      

      
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    acquire
      any shares of such capital stock or any other ownership interest (including,
      without limitation, any phantom interest, but excluding any shares of common
      stock issued upon conversion of the Convertible Notes), of Borrower or any
      of
      the Subsidiaries, other than issuances of shares of common stock pursuant to
      the
      Plans or upon exercise of options, warrants or other convertible securities
      outstanding as of the date hereof. 

     

    (l)  Corporate
      Governance Matters.
      Amend
      or waive any provisions of its Certificate of Incorporation or Bylaws, or change
      the number of directors on Borrower’s Board of Directors, other than as
      contemplated by the Purchase Agreement. 

     

    (m)  Mergers
      or Acquisitions.
      Merge
      or consolidate, or permit any of its Subsidiaries to merge or consolidate,
      with
      or into any other non-Affiliate business organization, other than Lender or
      its
      Affiliates, or acquire, or permit any of its Subsidiaries to acquire, all or
      substantially all of the capital stock or property of another
      Person.

     

    5.  Events
      of Default; Remedies.
      

     

    (a)  The
      occurrence of any one or more of the following events shall constitute an
“Event
      of Default”
      hereunder:

     

    (i)  Borrower’s
      failure to pay any amount payable under either of the Notes in accordance with
      the terms thereof; provided,
      however,
      that
      Borrower shall have three (3) business days in which to cure any failure to
      pay
      interest due under any of the Notes;

     

    (ii)  Borrower’s
      failure to issue any Common Stock issuable under any of the Convertible Notes
      in
      accordance with the terms thereof upon Lender’s exercise of the Conversion
      Right, as defined in such Convertible Note; 

     

    (iii)  Borrower’s
      breach of any representation and warranty made to Lender in any of the
      Transaction Documents or Borrower’s breach of any covenant under any of the
      Transaction Documents which is not cured within ten (10) business days of the
      earlier of Borrower learning of such breach or of notice thereof from Lender;
      provided,
      however,
      that if
      the cure will take more than ten (10) business days and Borrower is diligently
      pursuing such cure during such ten (10) business day period, then an Event
      of
      Default shall not occur with respect to such breach if it is cured within twenty
      (20) business days of the earlier of an officer of Borrower learning of such
      breach or receipt by Borrower of notice thereof from Lender; 

     

    (iv)  Borrower
      (A) has an order for relief entered against it under the federal Bankruptcy
      Code, (B) makes an assignment for the benefit of creditors, (C) applies for
      or
      seeks the appointment of a receiver, liquidator, assignee, trustee or other
      similar official for it or of any substantial part of its property or any such
      official is appointed, other than upon Borrower’s request, and such unrequested
      appointment continues for sixty (60) days, (D) institutes proceedings seeking
      an
      order for relief under the federal Bankruptcy Code or seeking to adjudicate
      it a
      bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
      reorganization, arrangement, adjustment or composition of it or any of its
      debts
      under other applicable federal or state law relating to creditor rights and
      remedies, or any such proceeding is filed against it, other than upon Borrower’s
      request, 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    and
      such
      unrequested proceeding continues undismissed or unstayed for thirty (30) days,
      or (E) takes corporate action in furtherance of any of the foregoing
      actions;

     

    (v)  the
      occurrence and continuance of any default under any lease or agreement for
      borrowed money having an outstanding principal amount in excess of $100,000
      that
      gives the lessor or the creditor of such indebtedness, as applicable, the right
      to accelerate the lease payments or the indebtedness, as applicable, or the
      right to exercise any rights or remedies with respect to any of the Collateral;
      

     

    (vi)  the
      entry
      of any judgment or order against Borrower which remains unsatisfied or
      undischarged and in effect for forty-five (45) days after such entry without
      a
      stay of enforcement or execution; 

     

    (vii)  the
      occurrence of a Change of Control; or

     

    (viii)  any
      material portion of Borrower’s assets is attached, seized, subjected to a writ
      or distress warrant, or is levied upon, or comes into the possession of any
      trustee, receiver or person acting in a similar capacity and such attachment,
      seizure, writ or distress warrant or levy has not been removed, discharged
      or
      rescinded within ten (10) business days, or Borrower is enjoined, restrained,
      or
      in any way prevented by court order from continuing to conduct all or any
      material part of its business affairs.

     

    (b)  Upon
      the
      occurrence and during the continuance of any Event of Default, Lender, may
      at
      any time, do any of the following: 

     

    (i)  accelerate
      the payment of the amounts owing under the Notes; 

     

    (ii)  enforce
      the Notes by exercise of the rights and remedies under this Agreement or granted
      to Lender by applicable law; and

     

    (iii)  exercise,
      in addition to all other rights and remedies granted in this Agreement, all
      rights and remedies of a secured party under the UCC and other applicable
      laws.

     

    (c)  Without
      limiting the generality of the foregoing provisions in Section 5(b), Lender
      shall have the right to sell or otherwise dispose of all or any part of the
      Collateral, either at public or private sale, in lots or in bulk, for cash
      or
      for credit, with or without warranties or representations, and upon such terms
      and conditions, all as Lender, in its sole discretion, may deem advisable,
      and
      it shall have the right to purchase at any such sale. Borrower agrees that
      a
      notice sent at least fifteen (15) days before the time of any intended public
      sale or of the time after which any private sale or other disposition of the
      Collateral is to be made shall be reasonable notice of such sale or other
      disposition. The proceeds of any such sale or other Collateral disposition
      shall
      be applied, first to the expenses of retaking, holding, storing, processing
      and
      preparing for sale, selling, and the like, and to Lender’s reasonable and
      documented attorneys’ fees and legal expenses, and then to the Obligations and
      to the payment of any other amounts required by applicable law, after which
      Lender shall account to Borrower for any surplus proceeds. If, upon the sale
      or
      other disposition of the Collateral, the proceeds thereof are insufficient
      to
      pay all amounts to which Lender is legally 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    entitled,
      Borrower shall be liable for the deficiency, together with interest thereon
      at
      the default rate specified in the Notes, and the reasonable and documented
      fees
      of any attorneys Lender employs to collect such deficiency; provided,
      however,
      that
      the foregoing shall not be deemed to require Lender to resort to or initiate
      proceedings against the Collateral prior to the collection of any such
      deficiency from Borrower. To the extent permitted by applicable law, Borrower
      waives all claims, damages and demands against Lender arising out of the
      retention or sale or lease of the Collateral or other exercise of Lender’s
      rights and remedies with respect thereto.

     

    (d)  To
      the
      extent permitted by law, Borrower covenants that it will not at any time insist
      upon or plead, or in any manner whatever claim or take any benefit or advantage
      of, any stay or extension law now or at any time hereafter in force, nor claim,
      take or insist upon any benefit or advantage of or from any law now or hereafter
      in force providing for the valuation or appraisal of the Collateral or any
      part
      thereof, prior to any sale or sales thereof to be made pursuant to any provision
      herein contained, or the decree, judgment or order of any court of competent
      jurisdiction; or, after such sale or sales, claim or exercise any right under
      any statute now or hereafter made or enacted by any state or otherwise to redeem
      the property so sold or any part thereof, and, to the full extent legally
      permitted, hereby expressly waives all benefit and advantage of any such law
      or
      laws, and covenants that it will not invoke or utilize any such law or laws
      or
      otherwise hinder, delay or impede the execution of any power herein granted
      and
      delegated to Lender, but will suffer and permit the execution of every such
      power as though no such power, law or laws had been made or
      enacted.

     

    (e)  Any
      sale,
      whether under any power of sale hereby given or by virtue of judicial
      proceedings, shall operate to divest all Borrower’s right, title, interest,
      claim and demand whatsoever, either at law or in equity, in and to the
      Collateral sold, and shall be a perpetual bar, both at law and in equity,
      against Borrower, its successors and assigns, and against all persons and
      entities claiming the Collateral sold or any part thereof under, by or through
      Borrower, its successors or assigns.

     

    (f)  Borrower
      appoints Lender, and any officer, employee or agent of Lender, with full power
      of substitution, as Borrower’s true and lawful attorney-in-fact, effective as of
      the date hereof, with power, in its own name or in the name of Borrower, during
      the continuance of an Event of Default, to endorse any notes, checks, drafts,
      money orders, or other instruments of payment in respect of the Collateral
      that
      may come into Lender’s possession, to sign and endorse any drafts against
      debtors, assignments, verifications and notices in connection with accounts,
      and
      other documents relating to Collateral; to pay or discharge taxes or Liens
      at
      any time levied or placed on or threatened against the Collateral; to demand,
      collect, issue receipt for, compromise, settle and sue for monies due in respect
      of the Collateral; to notify parties obligated with respect to the Collateral
      to
      make payments directly to Lender; and, generally, to do, at Lender’s option and
      at Borrower’s expense, at any time, or from time to time, all acts and things
      which Lender deems necessary to protect, preserve and realize upon the
      Collateral and Lender’s security interest therein to effect the intent of this
      Agreement, all as fully and effectually as Borrower might or could do; provided
      that Lender provides Borrower with prompt notice of such actions having been
      taken and Borrower hereby ratifies all that said attorney shall lawfully do
      or
      cause to be done by virtue hereof. This power of attorney shall be irrevocable
      as long as any of the Obligations are outstanding.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (g)  All
      of
      Lender’s rights and remedies with respect to the Collateral, whether established
      hereby or by any other agreements, instruments or documents or by law shall
      be
      cumulative and may be exercised singly or concurrently.

     

    6.  Term.
      The
      term of this Agreement shall begin on the date stated above and shall continue
      and be binding upon Borrower until all Obligations have been fully paid (other
      than contingent indemnification obligations). 

     

    7.  Miscellaneous.

     

    (a)  Indemnity.
      Borrower shall defend, indemnify and hold harmless Lender and its stockholders,
      directors, officers, employees, and agents against: (a) all obligations,
      demands, claims, and liabilities claimed or asserted by any other party in
      connection with the transactions contemplated by this Agreement and the Notes;
      and (b) all losses and expenses in any way suffered, incurred, or paid by
      Lender as a result of or in any way arising out of, following, or consequential
      to transactions between Lender and Borrower whether under this Agreement or
      the
      Notes, or otherwise (including reasonable and documented attorneys’ fees and
      expenses), except for losses caused by Lender’s gross negligence or willful
      misconduct. The
      indemnity under this Section 7(a) shall survive payment, performance and
      discharge of the Obligations and the
      termination of this Agreement until applicable statutes of limitations for
      actions that may be brought against Lender have run.

     

    (b)  Limitation
      on Lender’ Duty in Respect of Collateral.
      Lender
      shall not have any obligation or liability under any contract or license by
      reason of or arising out of this Agreement or the granting of a security
      interest therein or the receipt of any payment relating to any contract or
      license pursuant hereto, nor shall Lender be required or obligated in any manner
      to perform or fulfill any of Borrower’s obligations under or pursuant to any
      contract or license, or to make any payment, or to make any inquiry as to the
      nature or the sufficiency of any payment received by it or the sufficiency
      of
      any performance by any party under any contract or license, or to present or
      file any claim, or to take any action to collect or enforce any performance
      or
      the payment of any amounts which may have been assigned to it or to which it
      may
      be entitled at any time or times. Lender shall be deemed to have acted
      reasonably in the custody, preservation and disposition of any of the Collateral
      if it takes such action as Borrower requests in writing, but Lender’s failure to
      comply with any such request shall not in itself be deemed a failure to act
      reasonably, and no failure of Lender to do any act not so requested shall be
      deemed a failure to act reasonably.

     

    (c)  Governing
      Law.
      This
      Agreement is governed by and shall be construed in accordance with the laws
      of
      the State of Delaware, without reference to the conflicts of law provisions
      thereof
      except
      as required by mandatory provisions of law and to the extent the validity or
      perfection of the security interests hereunder, or the remedies hereunder,
      in
      respect of any Collateral are governed by the law of a jurisdiction other than
      Delaware.

     

    (d)  Severability
      of Provisions. If
      any
      one or more of the provisions contained in this Agreement shall for any reason
      be held to be invalid, illegal or unenforceable in any respect, such invalidity,
      illegality or unenforceability shall not affect any other provision hereof,
      and
      this 

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Agreement
      shall be construed as if such invalid, illegal or unenforceable provision had
      never been contained herein.

     

    (e)  Time
      of the Essence.
      Time is
      of the very essence of this Agreement.

     

    (f)  Notices.
      All
      notices required or permitted hereunder shall be in writing and shall be given,
      and be deemed effective, in accordance with Section 8(f) of the Purchase
      Agreement.

     

    (g)  Waiver;
      Amendment.
      No
      failure or delay on Lender’s part in the exercise of any right or remedy, power
      or privilege shall operate as a waiver thereof. No single or partial exercise
      of
      a right or remedy, power or privilege shall preclude other or further exercise
      thereof. No waiver of any right hereunder shall be effective unless in a writing
      executed by Lender and Borrower. Any
      such
      waiver shall be effective only for the specific purpose for which it is given.
      The rights and remedies under this Agreement are cumulative and not exclusive
      of
      any other rights, remedies, powers or privileges that may otherwise the
      available to Lender. No
      provision of this Agreement may be amended, waived or modified or rights
      modified or released, other than by a document signed by Borrower and Lender.
      This Agreement may be amended, waived or modified upon the written consent
      of
      Borrower and Lender.

     

    (h)  Binding
      Effect.
      This
      Agreement shall be binding upon, and shall inure to the benefit of, Borrower
      and
      Lender and their respective successors and assigns; provided,
      however,
      that
      (i) Borrower’s rights and obligations shall not be assigned or delegated without
      Lender’s prior written consent, given in its sole discretion, and any purported
      assignment or delegation without such consent shall be void ab initio,
      and
      (ii) Lender may not assign any of the Obligations, or its rights and obligations
      hereunder, to any Person that is not an Affiliate of Lender.

     

    (i)  Counterparts.
      This
      Agreement may be executed by facsimile and in any number of counterparts and
      by
      different parties hereto in separate counterparts, each of which when so
      executed shall be deemed to be an original and all of which taken together
      shall
      constitute but one and the same agreement.

     

    [Signature
      Page Follows]

    

    

    
      
        
        

        
        

      

      
        14

        
          

        

      

      
        
        

        
        

      

    

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

     

    

    
      	
              DSL.NET,
                INC.

               

               

              By:  /s/
                David F.
                Struwas                                       
                 

              Name:
                David
                F.
                Struwas                                           
                 

              Title:
                President
                & Chief Executive
                Officer            
                 

            	
              MDS
                ACQUISITION, INC.

               

               

              By: 
                 /s/
                D. Craig
                Young                           
                

              Name:
                D.
                Craig
                Young                             
                

              Title:
                Chief
                Executive
                Officer                  
                

            

    

    

    

    

    
      
        
          

          

          Signature
            Page to Security Agreement

           

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    EXHIBIT
      A

    

    COLLATERAL
      DESCRIPTION

    

    All
      personal property of DSL.net, Inc. (herein referred to as “Borrower”)
      whether presently existing or hereafter created or acquired, and wherever
      located, including, but not limited to:

     

    (a)
       all
      accounts (including health-care-insurance receivables), chattel paper (including
      tangible and electronic chattel paper), deposit accounts, documents (including
      negotiable documents), equipment (including all accessions and additions
      thereto), general intangibles (including payment intangibles and software),
      goods (including fixtures), instruments (including promissory notes), inventory
      (including all goods held for sale or lease or to be furnished under a contract
      of service, and including returns and repossessions), investment property
      (including securities and securities entitlements), letter of credit rights,
      money, and all of Borrower’s books and records with respect to any of the
      foregoing, and the computers and equipment containing said books and records;
      

     

    (b)
       all
      common law and statutory copyrights and copyright registrations, applications
      for registration, now existing or hereafter arising, in the United States of
      America or in any foreign jurisdiction, obtained or to be obtained on or in
      connection with any of the forgoing, or any parts thereof or any underlying
      or
      component elements of any of the forgoing, together with the right to copyright
      and all rights to renew or extend such copyrights and the right (but not the
      obligation) of Lender to sue in its own name and/or in the name of Borrower
      for
      past, present and future infringements of copyright; 

     

    (c)
       all
      trademarks, service marks, trade names and service names and the goodwill
      associated therewith, together with the right to trademark and all rights to
      renew or extend such trademarks and the right (but not the obligation) of Lender
      to sue in its own name and/or in the name of Borrower for past, present and
      future infringements of trademark provided that the Collateral shall not include
      any intent to use filings; 

     

    (d)
       all
      (i)
      patents and patent applications filed in the United States Patent and Trademark
      Office or any similar office of any foreign jurisdiction, and interests under
      patent license agreements, including the inventions and improvements described
      and claimed therein, (ii) licenses pertaining to any patent whether Borrower
      is
      licensor or licensee, (iii) income, royalties, damages, payments, accounts
      and
      accounts receivable now or hereafter due and/or payable under and with respect
      thereto, including damages and payments for past, present or future
      infringements thereof, (iv) right (but not the obligation) to sue in the name
      of
      Borrower and/or in the name of Lender for past, present and future infringements
      thereof, (v) rights corresponding thereto throughout the world in all
      jurisdictions in which such patents have been issued or applied for, and
      (vi) reissues, divisions, continuations, renewals, extensions and
      continuations-in-part with respect to any of the foregoing; and 

     

    (e)
       any
      and
      all cash proceeds and/or noncash proceeds of any of the foregoing, including
      insurance proceeds, and all supporting obligations and the security therefor
      or
      for any right to payment. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    All
      terms
      above have the meanings given to them in the Delaware Uniform Commercial Code,
      as amended or supplemented from time to time.

     

    The
      Collateral shall not include (i) any equity interests in Regulated Entities,
      or
      (ii) any lease, license, contract, property right or agreement to which Borrower
      is a party or any of its rights or interests thereunder if and only for so
      long
      as the grant of a security interest hereunder shall constitute or result in
      a
      breach, termination or default under any such lease, license, contract, property
      right or agreement (other than to the extent that any such term would be
      rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the
      Uniform Commercial Code of any relevant jurisdiction or any other applicable
      law
      or principles of equity); provided,
      however,
      that
      such security interest shall attach immediately to any portion of such lease,
      license, contract, property rights or agreement that does not result in any
      of
      the consequences specified above. 

     

    

     

    

    
      
        
        

        
        

      

      
        2

        
          

        

      

      
        
        

        
        

      

    

    EXHIBIT
      B

    

    EXISTING
      SECURED CREDITORS

    

    
      	1.  	
              Liens
                securing that certain Amended and Restated Secured Convertible Minimum
                Borrowing Note, dated June 2, 2006, in the principal amount of $4,250,000,
                payable to Laurus Master Fund, Ltd. and all amounts owing in respect
                of
                the agreements related thereto.

            

    

     

    
      	2.  	
              Liens
                securing that certain Amended and Restated Secured Revolving Note,
                dated
                June 2, 2006, in the principal amount of $750,000, payable to Laurus
                Master Fund, Ltd. and all amounts owing in respect of the agreements
                related thereto.

            

    

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE

     

    Existing
      Indebtedness

     

    The
      Indebtedness secured by the Liens described in Exhibit B.

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